In nearly all of Northern California and many other areas of the country, sellers provide a full set of inspection reports and disclosure information for prospective buyers to review before deciding to make an offer. This provides a high degree of peace of mind for both prospective buyers and sellers, since it minimizes surprises during a property investigation period.
In the usual way homes have been sold in Southern California, inspections and disclosures are not done until after a sale contract is signed. During escrow frequently there are re-negotiations for various repair costs, occasional delays in a closing date, and frequent misunderstandings that result in negative feelings between buyer and seller. Did you know that 20 to 25 percent of escrows in our area fail to close because of buyers having problems with property investigation issues?
Why would a buyer be willing to continue an escrow when problems are found during inspections that the buyers feel are significant? How might you react if a buyer asks you to fix some of these problems when the contract clearly stated it was an “as is” sale? What options do you have after escrow has already begun and issues with the property become challenges for both you and the buyer? Sellers can facilitate a smoother transaction by putting potential buyers at ease, reducing the number of issues that could become re-negotiation points and preventing irritating delays. More importantly, this procedure of “pre-inspections” and full disclosures can help prevent the loss of an escrow entirely.
Some owners even get additional inspections to further resolve questions raised by a building inspector. These supplemental investigations may include the roof and video scoping of the chimney and/or of sewer lines. Also, since concerns about mold have become a challenge for escrows, mold inspectors can report whether spots contain toxic mold, how extensive remediation might be, whether there are any potential health hazards, or whether there are no current environmental concerns.
If you and the buyer are able to resolve who will be paying for which of the problems that have been discovered, there still may be some delays to the escrow. What might the consequences be to you if your escrow closes several days later than scheduled?
Of course, the buyers may choose to have their own property inspection, or have an inspector visit the property to verify the seller did repair items noted in the original report. In any case, at least a significant amount of potential problems will have been prevented by a “pre-inspection.” The cost is generally $400 to 800, and can save thousands of dollars later. The “cost” may well be considered a good investment, rather than an expense. This method of selling results in less stress, with both parties having more peace of mind in the better knowledge. Moreover, this process gives the seller greater assurance of a more predictable and successful escrow.
Other sources of surprises and re-negotiations in an escrow are property disclosures. The purchase contract requires the seller to provide the buyer with numerous such items, and generally these are provided after escrow starts. However, the buyer can cancel the escrow based on what some of this information includes. The following are some of the reports and disclosures which are required: three-page seller’s transfer disclosure statement, four-page seller’s property questionnaire, earthquake hazards report, and environmental hazards booklet, natural hazards disclosure statement, and eight required public reports that include information about seismic hazards, high-risk fire zones, proximity to liquifaction zones, and so forth. If all of these items are given to a prospective buyer before a final contract is signed, it may further minimize potential issues.
Those are the reasons why “pre-inspections” and disclosures are strongly recommended, and a real estate agent can have an escrow fall-out ratio of as low as five percent due to this approach. By the way, be sure to discuss all of these concepts with prospective agents before you hire one to take on this responsibility.
For the past 24 years Michael Edlen has provided real estate counseling services to prospective buyers and sellers. Most of his business is derived from a referral base of over 900 past clients. More information is available on www.MichaelEdlen.com. He can be reached at 310.230.7373 or [email protected]