PRACTICE TIPS FOR REAL ESTATE AGENTS – PART ONE: GUIDING YOUR BUYER THROUGH INSPECTIONS

Congratulations on successfully negotiating a contract! Having a ratified contract is a HUGE accomplishment in today’s market with low inventory, inflation, and rising interest rates, just to name a few. With this first major step completed, now you can guide your client through the various steps which lie between contract and closing. Your expertise in handling these steps can set you apart from the average agent and earn your client’s ongoing trust and loyalty. This article will address a highly significant and important step of the process, namely, inspections.

TIP #1 – WHAT ABOUT WAIVING THE PROPERTY INSPECTION?

In the frenzied market of 2021/2022, buyers sometimes waive home inspections to have their offer accepted over a half dozen competing offers. Waiving inspections comes at a cost and risk. Unsurprisingly buyers will later discover serious defects or damage. Sometimes the buyer may not learn of the serious defects until selling the home and then having to repair it at their own expense.

Informational Inspection? An inspection for informational purposes only may or may not allow the buyer to terminate the contract, if unsatisfied. It depends upon how it is worded. If the contingency is struck from the purchase agreement and only the words, “Inspection for Buyer’s information only”, appear, then the Buyer cannot terminate the contract if the inspection is unsatisfactory.

Disclosure in lieu of inspection? Under Virginia law, the seller has no obligation to disclose the property condition (with very limited exceptions). The seller cannot fraudulently conceal or misrepresent the property condition. But, proving that a seller committed fraudulent concealment or misrepresentation is extremely difficult. So, in most cases where the buyer later discovers a material defect, the buyer has no effective recourse against the seller or an inspector.

All this to say, a buyer’s agent should remind the buyer of what they risk when writing an offer that foregoes the property inspection. You can refer them to the Consumer Disclosure (in Hampton Roads, it’s the CDIF) and the DPOR Disclosure Residential Property Statement.

TIP #2 – DRAFTING THE PROPERTY INSPECTION CONTINGENCY REMOVAL ADDENDUM (PICRA):

Drafting a good PICRA is harder than it looks. Copying verbiage from the home inspection report is not always enough. Here are a few examples of when the PICRA needs to be more specific than the inspection report.

Repair or replace – If the report does not specify whether the defective item should be repaired vs. replaced, don’t hesitate to ask the home inspector for more guidance before drafting the PICRA. The PICRA must specify one or the other, if at all possible. If left optional, the seller will likely do whatever is less expensive, and it may not be satisfactory to the buyer.

Further evaluation – If the report recommends further evaluation by a licensed contractor, then the PICRA needs to include: a) who will select and pay for the contractor; b) whether the inspection contingency period will be extended until the evaluation is completed, or alternatively, that the seller agrees to correct any and all defects shown on the evaluation report to be corrected. Example: “Have roof further evaluated by a licensed roofing contractor and have contractor issue a written report to buyer and seller and correct any and all deficiencies noted thereon.”

Who should do the work? The PICRA should specify if a licensed contractor is required to do the work. If it does not specify, then the seller could do the work themselves or hire an unlicensed handyman.

TIP#3 – OTHER INSPECTIONS

Termite And Moisture – Choosing the termite inspection company is in your client’s best interest so that the inspector is contractually liable to your client. Make sure the inspector inspects all outbuildings, as well as the house. Read the Wood Destroying Insect Infestation Report and Wood Destroying Organism Report immediately upon receipt. The block should be checked which reads, “No visible evidence”, on both the termite and the moisture reports. If this block is not checked, then read further to see if treatment/repairs are required. Request copies of any repair or treatment proposals. Share the reports and proposals with the buyer, so they aren’t caught off guard at closing. Look for documentation of completion of the work prior to walk through.

Private drinking water well and/or Onsite septic system – Few subdivision homes within city limits are served by private well and septic systems, but they are common in the more rural areas. As with the termite and moisture inspections, it is highly recommended that the buyer choose the inspection service (preferably at the seller’s expense).

Well water test – The basic well water test will only show whether there is E.coli or coliform in the water. The basic test does not ensure the water tastes good and doesn’t stink. An expanded water test can be obtained at an additional cost to check for lead and nitrates. The water sample test does NOT check the functionality of the well equipment, so make sure this is covered in the home inspection. Contaminated well water can be life-threatening, so the water test should never be waived.

Septic inspection – When choosing a septic inspection company, verify that it is licensed and in good standing with the Commonwealth of Virginia. The septic inspection report should include a checklist of the numerous different components of the septic system. Problems with the septic system can be very expensive to fix, and they can render the house uninhabitable if left unrepaired. So, this inspection should be conducted well enough in advance of closing for any repairs to be completed.

Health department records – The Health Department for the City/County maintains records of well and septic permits and any violation reports. The buyer should make a FOIA request to obtain these records in advance of closing. These records would show, for example, if either system had a proper permit, has been repaired in past, any restrictions on the system (the number of bedrooms allowed on the septic system), and the location of the septic drain field.

Waivers – Septic system repair “Waivers” that were granted to the seller are not transferrable to the buyer at closing.

TIP #4 – DOCUMENTING REPAIRS

Estimate v. Invoice v. Receipt – There should be a final Invoice itemizing the work completed. The description on the Invoice should track the description on the PICRA. (NOTE: An Estimate only shows what work was proposed and is not an indication of completion.) In addition to the contractor’s invoice, look for a Receiptshowing that the work has been paid for. If there isn’t a Receipt, have the settlement agent collect the contractor’s payment at closing, so as to avoid the contractor filing a mechanic’s lien against the property if the seller does not pay.

Licensed contractors – For all work being done by licensed contractors, it is important that the Invoice show the contractor’s license number. Look up the contractor on DPOR License Lookup to verify the license number. If not listed, then ask the seller for proof of the contractor’s license. If the name on the license doesn’t match the name on the Invoice, then ask for a new invoice from the actual licensed contractor. (NOTE: A business license, is NOT a state contractor’s license.)

Warranty? – Unless specifically required in the PICRA, the contractor does not have to warrant the workmanship. Some items will come with a manufacturer’s warranty (e.g. new appliance or HVAC) that automatically transfers. But, for workmanship to be guaranteed, the Invoice must state how long the work is warranted and that the warranty transfers to the new owner/buyer.

TIP #5 – WALKTHROUGH

Reinspection/Home inspector – If significant PICRA repairs, advise the buyer to have the home inspector re-inspect the property preferably prior to the final walk-through to ensure work is completed. Even if the buyer waived the property inspection, many standard purchase agreements permit a home inspector to inspect at walk-through those items covered under the Walk-Through provision of the agreement (but nothing more).

Agent pre-walk-through – The buyer’s agent should, if possible, conduct a pre-walk-through to determine that the seller has finished moving out and that the repairs appear to be complete, and that the utilities are on. This preliminary check by the agent allows an opportunity to head off any obvious deficiencies before the buyer conducts the final walk-through.

Timing – The final walk-through should ideally be conducted 12-24 hours prior to closing. If it is conducted too soon, things could happen to the property prior to closing. If it is conducted late (on the way to closing), there is no time to address deficiencies.

What to look for
Are all PICRA repairs completed? Take a copy of the PICRA and have the buyer check things off. Note: It is important for the buyer to take ownership of the walk-through, both for their own sense of control/responsibility and for the agent’s liability.

Are all “walk-through items” (except those waived during home inspection) in working order?

Are there any new defects since the home inspection? Check for possible damage caused during moving, such as gouged floors or walls.

Are all of the fixtures and conveying personal property (“items to convey”) still in place? Sellers have been known (accidentally, of course) to take the washing machine and dryer, not remembering that they agreed to convey it. We have also seen a seller swap out an old chandelier for the heirloom chandelier in the dining room.

Is all of the seller’s personal property out? Check sheds, closets, and attic spaces for forgotten items. Under the law of bailment, any non-conveyed personal property left on premises still belongs to the seller after closing, and the buyer cannot simply dispose of it without a written agreement. This can be extremely frustrating to the buyer. If items are on the curb for bulk trash pick-up, make sure the pick-up has been scheduled.

What options does the Buyer have if problems are discovered at Walk Through?

• Postpone closing until the problems are resolved. This is recommended when there are a significant number of incomplete, unacceptable items.
• Draft a Walk-Through Report which preserves the incomplete items to “survive closing” as an obligation of the Seller. This method may be acceptable if the work to be completed is straightforward and limited, the seller has substantially performed the other work, and the buyer would be inconvenienced by postponing closing. There is a degree of risk on the buyer’s part, in that, if the seller never completes the work, the buyer could be left to do it. Then, the buyer could, of course, seek legal recourse against the seller, but doing so may not be cost-effective.

CONCLUSION: In later installments of this blog, we will address other steps in the settlement process, to include choosing a settlement agent, title, associations, surveys, the settlement statement, and closing itself. Until then, feel free to contact us if we can be of support to you in your practice.

Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only. Laws frequently change and this post may not reflect the current law in Virginia or your jurisdiction. No information contained in this post should be construed as legal advice from Jones, Walker, and Lake P.C. or the individual author, nor is it intended to be a substitute for legal advice on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s licensing jurisdiction.