What is it?
During the Inspections phase of the closing process, you get to take a close look at the physical condition of the property in order to better understand what it is you’re buying. Through the help of professionals, you can identify any physical or environmental defects that, if not addressed by the Seller, would stop you from proceeding with the purchase of the property.
Our explanation of the Inspections phase will focus on the basic inspections framework and how to make sure you get through it with as little stress as possible. For more detailed guidance on home inspection standards of practice and home maintenance and repair issues, consult a local home inspector or contractor.
Why is it important?
Buying a property without knowing its actual condition can be a recipe for disaster. If buyers had to commit to closing on properties without any real grasp of whether there are major problems with the home’s mechanical systems or structural components, any deferred maintenance items on the horizon, or any unsafe environmental conditions, many new homeowners would quickly find themselves in hot water dealing with issues that they can’t afford to fix or that even jeopardize the safety of their families.
To avoid this problem, if you’re buying a home in New Jersey, your Contract will provide for an inspections contingency that affords you:
- the right to have the property inspected for physical and environmental defects by a state-licensed home inspector (and by other experts, as applicable); and also,
- a legal framework for negotiating the repair of defects with the Seller, including the right for you to terminate the Contract under certain circumstances. (This is why it is called a “contingency.” Your obligation to complete the purchase of the property is contingent upon — i.e., conditioned upon — you and the Seller being able to reach an agreement as to inspection issues.)
The Inspections phase is where this inspections contingency plays out, beginning with the physical inspection of the property by a professional home inspector, followed by the negotiation of inspection issues between you and the Seller…and ending with either the removal (or satisfaction) of the inspections contingency or, if the parties are unable to come to an agreement as to the repair of inspection issues, the termination of the Contract.
Note that it is extremely rare for a buyer to waive the inspection contingency, as the stakes are obviously high in doing so. Exceptions to this rule might be investor-buyers or buyers who plan on demolishing an existing home and building new. Rather than waive the inspections contingency entirely, it’s somewhat more common for buyers to agree to put limitations on their inspections contingency as part of their offer, in an attempt to make their offer more appealing to the Seller. A few examples of this might be the Buyer offering to:
- Limit inspections issues to “major” issues only (although whether an issue is “major” is ultimately a fuzzy, subjective determination, so this amounts to more of an assurance to the Seller that the Buyer won’t “nit-pick” during inspection negotiations);
- Limit inspections issues to structural or mechanical issues only;
- Absorb the first $______ of inspection issues (such that, if the inspection issues don’t total more than that amount in cost, the buyer can’t request any repairs of the Seller).
- Perform an inspection for informational purposes only (i.e., the Buyer agrees that it won’t ask the Seller to make any repairs but retains a right to walk away for any defects that are identified).
How does it work?
The Inspections phase of the closing process begins as soon as Attorney Review concludes. Your Contract with the Seller will stipulate a time within which you must complete your inspections. The most common allotted time is 10 or 14 days, calculated from the date that Attorney Review concludes. But in a competitive, “seller’s” market, it’s not surprising to see buyers offering to complete their inspections within as little as 7 days.
It’s important to note that “completing inspections” means not only performing the actual physical inspections at the property, but also providing the Seller with any repair requests and copies of the inspection reports, all within the allotted time. So waiting until the end of your allotted time period to get the actual inspection performed at the property is not wise.
To that end, the steps of the Inspections phase are:
STEP 1: Choose a Home Inspector
Ideally, you would start researching home inspectors during Attorney Review, so that you’ve decided which inspector you’d like to use by the time Attorney Review concludes and can get on his schedule as soon as possible thereafter (again, most inspectors will not put you on their schedule until you’ve concluded Attorney Review).
Many buyers make the mistake of not doing adequate due diligence on home inspectors and instead immediately hire the first name they hear from their agent or friends. Hiring a home inspector is one of the most critical parts of the home buying process, for obvious reasons. In fact, the Inspections phase is the most common phase where transactions fall apart. You should therefore pick a home inspector as carefully as you would pick any other member of your team of experts, like your closing attorney, real estate agent or mortgage lender.
Talk to two or three licensed home inspectors and ask:
- How long have they been a licensed inspector? Do they have any other special accreditations or experience, such as ASHI certification or an engineering degree?
- What are their fees for a general home inspection, radon test, and wood-destroying-insect inspection? (See below for a description of these standard inspections.)
- What is their availability for the projected week in which you expect to conclude Attorney Review?
- How quickly can they get you their written report once the inspection is completed? Many inspectors can get you their report within 24-48 hours.
- Can you see an example of their report?
- Will their report include photos?
If you’re able to speak with the actual inspector himself, as opposed to his office manager, try to get a sense of his communication style, approachability and demeanor, and whether they jive with you. If you’re finding it hard to connect with the inspector over the phone, chances are you’ll have trouble doing so during the actual inspection, when he’s trying to explain the inner workings of the house to you.
STEP 2: Schedule Your Inspections
As soon as Attorney Review concludes, you should call your chosen inspector and arrange to have the following standard inspections performed as soon as possible, bearing in mind that you’ll need to (a) complete all inspections, (b) receive and review all inspection reports, (c) determine what repair requests (if any) you’d like to ask of the Seller, and (d) have your attorney draft a letter to the Seller’s attorney conveying those requests…all within the allotted time of typically 10 or 14 days:
|Inspection:||Performed By:||Average Cost*:|
|General Home Inspection||NJ Licensed Home Inspector||$400-600|
|Radon Test||NJ Licensed Home Inspector||$200|
|Wood-Destroying Insect Inspection||NJ Licensed Home Inspector||$100-200|
|Oil Tank Sweep||NJ DEP-Certified Tank Services Company||$250|
* For an average single-family home; prices may vary with type and size of property.
The general home inspection, radon test, and wood-destroying insect inspection will typically all be conducted at the same time, as most licensed home inspectors are able to perform all three. The oil tank sweep, on the other hand, should be performed by a state-certified oil tank services company.
General Home Inspection
The general home inspection (GHI) is a high-level, visual examination of the condition of a property by a state-licensed professional home inspector, for the purposes of identifying any physical defects or certain environmental hazards at the property. The inspector looks at both the exterior and interior of the property, including:
Exterior: foundation, siding, roof/gutters, drainage, chimney, walkways/driveway, sidewalks, windows, doors;
Interior: mechanical systems (electrical, plumbing, HVAC); structural components; walls/floors/ceilings/windows/doors; fireplace; ventilation/insulation; appliances.
It’s important to note that the GHI is non-invasive, meaning your inspector will not be taking anything apart to look inside it and generally won’t be moving things around. In that sense, there are some limitations to the scope of a GHI. But home inspections are a regulated profession in New Jersey and, as a licensed professional, your inspector will be following state-mandated standards of practice in conducting your home inspection.
Most home inspectors will perform not only the GHI, but also the radon test and/or wood-destroying insect inspection, per your request and for an additional fee(s).
Radon is an odorless, tasteless, invisible, gas produced by the radioactive breakdown of naturally-occurring radium existing in most soils. It enters a home from the ground, seeping into the interior through cracks or other openings in the foundation. Radon is a Class A carcinogen for humans and the second-leading cause of lung cancer, which is why it is critical that a property be tested for elevated radon levels prior to purchase.
The radon test entails your inspector leaving a radon testing device in the home at the lowest habitable level (typically the basement) for 2-4 days, and then picking up the device at the end of that test period and sending it to a certified laboratory for analysis. The test result is a measure of the concentration of radon gas detected in the home during the test period and will be sent by the lab to your home inspector when it’s ready. Your inspector will then forward it to you.
A radon test result of 4.0 picocuries per liter (pCi/L) or higher is deemed unacceptable. In that event, generally the Contract will provide that, if the Seller refuses or is unable to remediate the radon level to below 4.0 pCi/L (through the installation of a radon mitigation system), you can terminate the Contract.
Note that you should proceed with a radon test even if the property has an existing radon mitigation system, as the system may not be working properly or may not be sufficiently reducing the radon level to below 4.0 pCi/L.
Wood-Destroying Insect Inspection
For an extra fee, your home inspector typically will also be able to perform a wood-destroying insect inspection (WDI) of the property at the same time as he is conducting the GHI and radon test. Many people refer to the WDI as a “termite inspection,” but the inspector is in actuality looking for more than just termites — other wood-destroying insects include carpenter ants, carpenter bees, and wood-boring beetles.
The results of the WDI will most commonly be presented to you in a standardized document called a Wood-Destroying Insect Inspection Report (a.k.a., Form NPMA-33). The report will state:
- whether your inspector did or did not observe any evidence of wood-destroying insects;
- what types of evidence he observed, if applicable (live vs. dead insects, or visible damage caused by wood-destroying insects); and,
- whether and what kind of treatment is recommended.
If your inspector didn’t see any live or dead wood-destroying insects but observed damage caused by wood-destroying insects, he will typically advise you to check with the Seller about any wood-destroying insect treatments that may have been undertaken in the past to address the infestation that caused the observed damage.
QUICK TIP! In the past, mortgage lenders required that buyers obtain a WDI and that any WDI issues be addressed prior to closing. Today, however, most lenders don’t require a WDI. (Lenders don’t see the inspection reports!) The exception to this is with respect to Veteran’s Administration (VA) loans — not only are VA borrowers required to obtain a WDI, but they also aren’t allowed to pay for it themselves (the Seller or one of the real estate agents typically covers it, usually by issuing the Buyer a credit at closing in the amount of the WDI fee).
Oil Tank Sweep
In addition to hiring a licensed home inspector to perform a GHI, radon test and WDI, you’ll need to hire a state-licensed oil tank services company to perform a tank sweep (a.k.a., a “tank scan”) to identify whether there are any underground oil storage tanks (“USTs”) at the property. A tank sweep involves:
– a visual assessment of the property for any physical signs that it was heated by oil fuel in the past or the present, such as vent and fill lines protruding from the ground, or oil supply lines running through the foundation walls of the home, into the basement;
– a scan of the property, typically within a 30-foot radius from the house, using a magnetic locator device (akin to a more advanced metal detector) and/or ground penetrating radar equipment, to identify any tanks in the ground.
The problem with USTs — the reason why it is critical to perform a tank sweep as part of your inspections — is their propensity to deteriorate over time and develop leaks. Holes and cracks in the USTs leach oil into the surrounding soil and sometimes the groundwater as well, requiring expensive remediation measures.
Due to the overall age of New Jersey’s housing stock, many homes are old enough to have been heated by oil fuel at some point in the past. Oil fuel was particularly popular as a home fuel source during the postwar period of the 1940’s and 1950’s, although there is no hard-and-fast rule for whether and when a home ever used oil heat; homes used oil heat as early as the early 1900’s, and there are many homes that are still heated with oil today.
Decades ago, homeowners largely buried their oil tanks in the ground, as it was not until the 1960’s that the environmental risks posed by leaking tanks started to come to light. As a result, when owners converted from oil to natural gas for their home heating fuel, underground oil tanks were oftentimes left in the ground, sometimes without even first being drained of any remaining oil. Those tanks inevitably deteriorated over time and developed holes and cracks through which oil was discharged into the surrounding soil, possibly even reaching and contaminating neighboring properties or the groundwater.
Alternatively, many tanks started leaking while still in active use, implicating years of slow but steady soil contamination as the tanks were repeatedly refilled during every cold season. Once these compromised tanks were abandoned in the ground in favor of natural gas systems, the undiscovered contamination remained, until an unwitting buyer performs a tank sweep at the property years later that leads to the discovery of the tank and, upon the tank’s removal, the contamination as well.
In New Jersey, if you fail to conduct a tank sweep and buy a property with a leaking tank, that contamination becomes your problem to remediate, regardless of whether you knew of the contamination at the time of purchase. This state of the law has led to buyers conducting tank sweeps as a matter of standard practice, as part of their inspections of the property. When a buyer unwittingly purchases a property with a UST, the tank’s existence (and the existence of any associated contamination) oftentimes goes undiscovered until the time comes to sell the property years down the line and their buyer inevitably performs a tank sweep. At that point, movement toward the closing must cease pending the removal of the tank and remediation of any contamination.
On average, UST removals cost $1500-$2000. Once the UST is removed from the ground, it is inspected for any holes. If any cracks are observed or any daylight shines through even the tiniest pinhole, the tank is deemed to have been compromised and the tank company must immediately call the NJ Department of Environmental Protection to open a case file for the property as a contaminated property. The tank company will then collect soil samples from around the area where the tank was located and send them to a lab for chemical analysis. If the test results reveal concentrations of petro-chemicals in excess of state-mandated thresholds, then the property must undergo remediation.
Basic soil remediations start at around $10,000 and involve the excavation of impacted soil and its replacement with clean soil, but costs climb steeply from there, such as when groundwater has been impacted by the leaked oil, requiring a groundwater remediation. Sometimes the Contract of Sale for a property must be cancelled entirely, as extensive remediations can cost upwards of hundreds of thousands of dollars and take years to complete, essentially rendering the property unsalable for that time.
While today, it is technically still legal in New Jersey to “decommission” an underground oil tank “in place” — meaning, hiring a state-certified tank services company to drain it of oil, fill it with sand or gravel, and then leave it in the ground, all with the proper permits from the municipality — the real estate market itself will not support this approach and, instead, demands that all underground oil tanks be removed. In other words, with the rare exception, buyers in today’s residential market are not willing to purchase a property that has a tank in the ground. In the same vein, sellers are being uniformly advised by their real estate agents to remove their underground oil tanks prior to listing. And, many lenders won’t approve a mortgage loan on a home that has a decommissioned tank in the ground.
If a property has an active UST, meaning the house is fueled by oil heat from a UST, the market dictates that the Seller will need to have the UST removed and an aboveground oil tank installed (usually in the basement of the home) prior to closing. While it is possible to conduct tank integrity tests to help a buyer determine whether an active UST is leaking or fully intact, such tests are not foolproof, carrying about a 95% accuracy rate. Because of this, closing attorneys and realtors alike advise their buyer clients not to purchase a property with a UST in the ground, whether active or inactive.
Additional (“As Needed”) Inspections
In addition to the four standard inspections described above (GHI, radon test, WDI, and tank sweep), there are a few other initial inspections that you may decide to perform at the property, whether on account of the specific features of the property, the custom and practice of the geographic area in which the property is located, or simply your own inclinations.
(Note: We distinguish between these additional initial inspections — which would happen concurrent with your GHI — versus follow-up inspections, which arise out of your home inspector’s findings during the GHI.)
A brief description of some of these additional initial inspections is provided here (for more detailed information, browse related NJ Closing Guide Blog articles):
Sewer Line Inspection. This inspection used to be more prevalent in certain geographic areas, such as Essex County, but over the past few years has become more ubiquitous. A closed-circuit camera is snaked through the main sewer line of the home, which is the waste drainage pipe that runs from the home to the municipal sewer main in the street. The resulting video footage helps to identify whether there are any blockages or breaks in the line that might require attention.
Sewer line repairs can range from a simple sewer line cleaning (hydro jetting water through the pipe to clear obstructions), to minimally-invasive (“trenchless”) installations of a pipe liner, to the most invasive complete replacement of the sewer line, which is very costly.
Pool Inspection. If the property you’re purchasing has a pool, you’ll need to hire a professional pool services company to conduct a pool inspection. This involves assessment of: the surface areas of the pool (deck, coping, liner, foundation); the component parts of the pool, such as drains, handrails, lights and safety fencing; and the pool equipment (filtration system, pumps, motors, heater, timers, electrical, etc.).
Notably, since homeowners have to winterize their pools just before the start of the cold season in order to remove all water from the lines and prevent pipes from bursting during freezing temperatures, this makes pool inspections a bit trickier during the winter months, because pools are not fully functional at that time and have been covered.
But a pool inspection can nevertheless still be performed, with some limitations. For example, the cover can be partially peeled back (with the understanding that the parties need to agree upon who will pay for the re-closing of the cover afterwards), all parts visually inspected for defects, and motors electrically tested. If a pool was professionally winterized, the lines are more likely to be in decent condition, it’s a good idea to ask the Seller for copies of the winterization receipt/paperwork from the pool company, as well as any past records associated with the pool’s maintenance.
Septic System Inspection. Homes that are not connected to a municipal sewer system will have a private septic system for their waste removal. A septic system is comprised of an underground septic tank into which domestic waste water (“effluent”) flows, where it then settles and is further broken down by bacteria, and then carried by outlet pipes to a drainage field (“septic field”), where it is disbursed and absorbed into the ground for further decomposition. Most of North Jersey is connected to public sewer systems, while properties in the more rural areas on the western side of the state might be more likely to have septic systems.
When you’re buying a home with a septic system, that system needs to be inspected by a state-licensed septic contractor. If there are defects found with the system, their repair prior to the closing should be negotiated between you and the Seller.
Well Water Testing. If you’re buying a home that gets its water from a private well on the property, rather than a municipal water system, New Jersey law (the Private Well Testing Act) requires that the well water be tested for compliance with state water safety standards prior to the closing.
However, the law does not specify which party — the Seller or the Buyer — must perform (and/or pay for) the test, so this can technically be negotiated upfront, during Attorney Review. Neither does the law specify what needs to be done in the event that the well water fails the test. But the general custom and practice in New Jersey is for the Seller to perform and pay for the standard water test, with the expectation that, if the water fails that test, the Seller will remediate (treat) and then re-test the water prior to closing to prove compliance.
If the Buyer wishes for additional testing for secondary contaminants not included in the standard water test, that will typically fall upon the Buyer to perform. Private wells are more common in the more rural/less dense parts of the state, such as western New Jersey.
Lead Testing. Lead tends to be one of those words that instantly instills fear in buyers. However, this fear is often born of certain misconceptions about the dangers of lead. A huge percentage of homes in New Jersey have some amount of lead in them, most often in the form of lead-based paint. This is because of the age of the state’s housing stock — New Jersey has a lot of older homes — and the fact that lead was very commonly used in paints up until 1978, when the government banned the use of lead-based paint in residential homes.
While, yes, lead is certainly dangerous to humans, it is dangerous only when ingested or absorbed into the body. This means the main worry when it comes to lead inside a home is the presence of chipping or peeling lead-based paint and the possibility that a child will eat those paint chips or play with them and then put their fingers in their mouth. If a home does not have crumbling or peeling paint, the lead risks are remote.
Moreover, most homes have been repainted since 1978, so any original layers of lead-based paint have been encapsulated by the layers of new paint. For these reasons, most buyers don’t perform lead testing as part of their inspections. When the rare buyer does perform lead testing and, as is practically inevitable, finds that there is lead-based paint somewhere in the house, it is arguably not a defect that can be raised as an inspection issue unless the surface is in poor condition and chipping or peeling.
(Note: When a buyer is applying for an FHA or VA mortgage loan, the accompanying FHA or VA appraisal tends to be more strict than a conventional loan appraisal, and FHA/VA appraisers will flag any chipping or peeling paint that they observe and the FHA/VA lender will require that it be repaired prior to closing as a condition of closing the loan.
STEP 3: Perform Your Inspections
It’s critical that you plan to attend the GHI (which includes the radon test and WDI) in person, not only so you can see, first-hand, any issues identified by your inspector, but also because the GHI is a unique, “one-time only” opportunity for you to get a comprehensive tutorial on the specific features and maintenance requirements of your particular home, from a professional.
In that sense, think of the GHI as a crash course on owning your home. You should ask plenty of questions and take notes, so bring a notepad, pen and your phone to take photos with (your inspector should be taking his own photos as well, for inclusion in his report). These notes, along with the written inspection report that your inspector will prepare, function as a snapshot of your home at that specific point in time. From it, you’ll know what needs to be repaired, replaced or upgraded and when, so you can plan for the long term accordingly.
The GHI, with radon test and WDI, typically takes anywhere from 2-4 hours to complete, depending on the size of the property, the nature and number of issues detected, and the extent of time taken by your inspector and you to discuss the home’s features and inner workings.
STEP 4: Arrange for Any Follow-up Inspections and Estimates
A home inspector is most often a “jack of all trades, master of none,” meaning his knowledge tends to be broad in scope, but not necessarily expert-level in any individual areas. If, during the home inspection, your inspector comes across an issue that’s beyond his expertise and calls for more in-depth assessment, he’ll advise you to obtain a follow-up inspection of that issue with an expert in the pertinent field.
For example, if your inspector conducts a Level I chimney inspection as part of the GHI and determines that there might be additional defects within the chimney that are beyond the visual scope of the GHI, he’ll recommend that you obtain a Level II chimney inspection from a chimney expert, which involves sending a camera up the chimney flue. Or, your home inspector might observe defects with the roof that merit a closer look by a roofing contractor, or potential mold in the basement or attic that a mold remediation specialist should take a look at.
Examples of follow-up inspections your home inspector might recommend, based on his findings during the GHI:
- Level II Chimney Inspection
- Roof Inspection
- Asbestos Testing
- Mold Testing
- Structural Inspection
You should proceed with arranging for any follow-up inspections immediately after the home inspection is complete, as they can often take time to get done given contractors’ busy schedules.
Note that, with follow-up inspections, you’re essentially calling an expert contractor to get both his professional opinion on the issue in question and an estimate for the repair of the issue. Accordingly, a follow-up inspection will not only help identify the exact nature of the problem, but also tell you how much it will cost to resolve it. This gives you a number and scope of work on which to base any negotiation with the Seller, whether you’re negotiating for the repair of the issue or a credit for same).
Be aware that some contractors charge a fee for an estimate appointment, so be sure to ask them about this upfront, while you’re on the phone. Once you receive your home inspector’s written inspection report, you should send the relevant portions to any contractors you’ve enlisted for follow-up inspections/estimates. This will help the contractors understand the potential issues and context within which they’ve been summoned.
STEP 5: Review Inspection Reports and Determine Repair Requests
Your home inspector will email you his written inspection report anywhere from 1-2 days after the inspection is completed. Forward the report to your closing attorney and real estate agent, if they have not already been copied. (Because the radon test takes about 10 days in total to complete, your radon test will still be pending. That’s fine — your attorney will reserve your right to make additional repair or remediation requests with respect to the radon test.)
You should also obtain written reports and estimates from each of your follow-up inspections.
Next, you should review the reports and begin to whittle the inspection issues down to a “short list” of items that you’d like to ask the Seller to repair prior to closing. To help get you to your short list, ask yourself, “Which items matter to me enough that, if the Seller didn’t agree to fix them, I would really second-guess whether I wanted to proceed with the purchase of the property?” As part of the whittling down process, you should also speak with your real estate agent, as he or she has the experience to advise you as to which inspection issues tend to be good fodder for inspection negotiations, versus which issues are considered overreaches or are simply never agreed to by sellers.
Remember: There’s no such thing as a defect-free home; even new construction homes have defects. Neither is a home expected to be defect free at closing. So try to adjust your expectations accordingly and think of the inspection negotiations as a balancing act between those issues that you absolutely need the Seller to repair before closing (or else you don’t want to buy the home), and those issues that you’re okay with taking on yourself after closing. (In this vein, one of the primary purposes of the GHI is to identify and distinguish between defects that call for immediate repair, and “deferred maintenance” items that can be put off for some amount of time.)
QUICK TIP! It’s never a good idea to take the approach of “ask for double the amount of things you really want, in order to end up with half.” Sending a repair request letter to the Seller that contains a long list of items sends the wrong message to the Seller and can get negotiations off to a bad start. You risk not only appearing unreasonable and immediately putting the Seller on the defensive, but also diverting attention away from the top-priority items that you really want the Seller to address.
Want your home purchase to make it through inspections with flying colors?
CHECK THIS OUT: How to Survive the Inspection Contingency
When coming up with your short list, there may be certain inspection issues for which you’d rather receive a credit from the Seller, as opposed to having the Seller make the repair prior to closing. Maybe you plan on doing some renovation work in the house after closing, making the repair of a given item a waste. Or, maybe you’d just rather be in charge of the repair yourself, including which contractor does the work. Or maybe you’re okay with either a repair or a credit. For such items, you would simply specify, in the repair request letter that your attorney prepares, that you’d like a credit for a given item (in the amount of $X, if you have an estimate from a contractor).
(Note: It’s generally a good idea to ask for a credit in a specific amount, to set the framework for a negotiation with the Seller. Otherwise, you’re leaving it up to the Seller to establish the ballpark for the negotiation. If you don’t have an estimate for that item and therefore don’t know the cost to repair it, you’re relying on the Seller to obtain an estimate or throw out his own figure.)
Any credit that the Seller agrees to provide you for inspection issues will be applied as a credit against your closing costs at the closing. In that sense, a credit is ‘cash in your pocket’, because you will be bringing that much less money to the closing.
QUICK TIP! Can I insist on a credit? While buyers frequently ask for a credit in lieu of repair for a given inspection issue, it’s important to understand that the Seller does not have to agree to provide the credit. If the Seller instead agrees to make the repair, that will likely be deemed an acceptable response under the legal framework of the standard inspection contingency, which typically provides that the Buyer can only terminate the Contract under the inspection contingency if the Seller refuses to repair any of the inspection issues raised by the Buyer. But as with any legal question, consult with your attorney, as the language of your particular Contract will govern.
STEP 6: Your Attorney Sends a Repair Request Letter to the Seller’s Attorney
Once you’ve come up with your short list of inspection issues to take to the Seller, you should discuss them with your closing attorney. Your attorney will then prepare an inspection letter conveying your repair (and/or credit) requests to the Seller. The letter will be emailed to the Seller’s attorney along with copies of all the inspection reports supporting the repair requests.
Notably, in order to expedite the inspection negotiations process, and given the amount of time it can take to get follow-up inspections completed, your attorney may decide to prepare and send the inspection letter before you’ve completed your follow-up inspections. In that case, any items that are still being investigated (i.e., that are pending follow-up inspection) will typically be noted in your repair request letter, with accompanying language along the lines of: “The Buyer is obtaining a follow-up inspection of this item and reserves his rights with respect to same.”
STEP 7: Receive the Seller’s Response to Your Repair Requests
Once your inspection letter and reports have been sent to the Seller (by way of the Seller’s attorney), you’ll need to give the Seller time to obtain their own professional opinions and estimates of the issues identified in your repair request letter. The standard amount of time given to sellers to respond to buyers’ inspection requests is seven (7) days, although as with all other deadlines in the Contract, this one is not hard.
Once the Seller has gathered opinions and estimates of their own, the Seller will decide how they want to respond to your repair request letter and will have their attorney prepare an inspection response letter and email it to your attorney.
Your attorney will forward that letter to you, at which point you should review it and, in consultation with your real estate agent and your attorney, determine whether the Seller’s response is acceptable to you, or whether it is not acceptable and you want to counter their response.
STEP 8: Additional Rounds of Negotiation, As Necessary
If the Seller’s response to your repair requests is not acceptable to you in whole or in part and you wish to counter their response, your attorney will prepare a reply letter conveying same and send it to the Seller’s attorney. The Seller would then either accept your counter or send another response letter with another counter. Successive rounds of negotiation between you and the Seller will continue until an agreement is reached as to the inspection items in question.
STEP 9: Conclude the Inspections Contingency (or Terminate the Contract)
Once you and the Seller reach an agreement as to all repair requests, the attorneys will deem the inspection contingency “concluded” or “satisfied.” This ends the Inspection phase of the closing process.
If the Seller has agreed to make any repairs, he will need to complete them and provide you with copies of any paid receipts for the work, prior to the closing. If the Seller agreed to provide you with any credits for inspection items in lieu of repair, those credits will appear on the final settlement statement at the closing, effectively reducing the amount of money you will need to bring to the closing by the amount of the credits.
If, on the other hand, you’re unable to reach an agreement with the Seller as to your repair requests and, accordingly, you don’t want to proceed with your purchase of the property, the conventional legal framework for the inspection contingency allows you to terminate the Contract based on Seller’s refusal to agree to any one of your repair requests. Some Contracts are written in such a way that the Seller also has the right to terminate the Contract if the parties can’t agree on inspection items. If either you or the Seller terminates the Contract pursuant to the inspection contingency, then you’ll be entitled to a prompt return of your deposit money.
QUICK TIP! Will I get my deposit back if the deal dies? Generally speaking, if either you or the Seller terminates the Contract pursuant to its terms, you’ll be entitled to a prompt return of your deposit money. But consult with your attorney as to this question, as it is ultimately determined by the specific language of your Contract with the Seller and the facts of the situation.
How do I prepare for it?
1. Be selective about your home inspector and line him up early. The ideal time to start researching inspectors is as soon as you begin Attorney Review, so you can hit the ground running with inspections as soon as Attorney Review concludes. Ask your realtor and 1-2 friends for inspector recommendations, and then interview 2-3 inspectors.
2. Set your inspection intentions early on: accept the fact that all houses have defects (even new construction) and that “defect-free” is not the benchmark for inspection negotiations. Going into the Inspections phase with the right attitude and frame of mind is more important than you realize for having a successful inspection contingency negotiation. More transactions fall apart in the Inspections phase than any other phase of the closing process.
Things to remember:
* By default, all home purchase Contracts are “as is” sales. But don’t be scared by this language. It doesn’t mean you have to buy the property “as is.” What it does mean is that the Seller is under no obligation to agree to make any repairs or give you any credits. They typically do agree to do some things, as the end result of a negotiation between you, but legally speaking, they don’t have to. (And if they don’t, you then have the right to terminate the Contract.) However, sometimes properties are explicitly marketed (listed) as an “as-is sale.” This is the Seller’s warning to prospective buyers that they should be prepared for the Seller to say ‘no’ to any repair requests. This does not mean the buyer can’t terminate the Contract for any inspection issue that Seller refuses to repair.
* The inspections contingency is not a “get out of jail free” card. Many buyers think that the inspections contingency allows them to take a close look at the property and then simply walk away for any reason. Typically, this isn’t true. The standard legal framework for an inspection contingency in New Jersey requires that the Buyer give the Seller the opportunity to agree to repair a given defect, and the Seller must refuse to do so, before the Buyer is allowed to terminate the Contract under the inspection contingency.
* Try to take emotions out of the equation when negotiating inspection issues with the Seller. Many buyers go into the home buying process thinking it’s an adversarial process — that it’s “buyer vs. seller” and each side wants to “win.” But this isn’t true…and neither is it a good way to approach the transaction. At bottom, there’s a huge element of cooperation that needs to happen between the parties at all levels and points of a home purchase transaction in order to even get to a closing. This means the idea of compromise needs to be at the forefront of your minds as you proceed toward closing. Understand that both you and the Seller have the same goal in mind – the transfer of the property to you.
What happens next?
After the inspection contingency is resolved, the transaction enters the “Title” phase of the closing process. Your attorney will order a title search for the property, to ensure that the Seller will be able to convey clear title (clear legal ownership) to you at the closing.
But note: As your transaction proceeds from Inspections to Title, the Mortgage phase — your mortgage approval process — will continue to be ongoing, in the background, all the while.
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MY CHECKLIST: Inspections
◻ Obtain 2-3 referrals for home inspectors from your real estate agent and friends.
◻ Select your home inspector and schedule all inspections.
◻ Proceed with your mortgage application at the same time as you’re proceeding with your inspections. (The Mortgage phase of the closing process begins at the same time as the Inspections phase. Click here to go to the Mortgage phase.)
◻ Perform your home inspection and any other inspections of the property (e.g., radon test, wood-destroying insect inspection, oil tank sweep, septic inspection, well water test, etc.).
◻ Perform any follow-up inspections, if recommended by your home inspector, and obtain repair estimates.
◻ Receive inspection reports from your home inspector and any other inspectors/contractors.
◻ Forward copies of all inspection reports and estimates to your attorney.
◻ Review all inspection reports and determine any repair requests you’d like to make to the Seller. Consult with your real estate agent and your attorney. Your attorney will then draft an inspection letter communicating your repair requests to the Seller.
◻ Receive / review / approve your attorney’s draft inspection letter.
◻ Your attorney emails the inspection letter to the Seller’s attorney, along with copies of your inspection reports and, if applicable, any repair estimates.
◻ Receive the Seller’s letter responding to your repair requests.
◻ Proceed with additional rounds of back-and-forth negotiation with the Seller as to repair requests, if necessary.
◻ Reach an agreement with the Seller as to repair requests. The Inspections phase is now concluded. The Seller must complete any agreed-upon repairs prior to the closing.
◻ NEXT STEP: Your attorney orders a title search on the property.