After attorney review concludes and you’re under binding Contract, inspections are likely the next big thing on your mind. Your inspections will inform you of any structural, mechanical or environmental defects that need to be addressed and alert you to any potential health hazards or safety concerns.
They also give you an idea of the age of the major systems and components of the home (roofing, siding, windows, HVAC, etc.), as well as the kinds of ongoing maintenance costs you might incur (landscaping, pest control, duct cleaning, etc.), so you can start planning and budgeting for them now.
Ask any real estate professional and they will tell you that the majority of deals that fall apart do so during the inspections phase. But don’t let the inspection contingency get the best of your home purchase –- follow these tips and you won’t miss the forest for the trees, or worse yet, miss out on the home of your dreams.
Do your research. Stay on track.
Select your inspectors and schedule all of your inspections early. This will ensure that you can complete your inspections, review your inspection reports and compile your list of repair requests to present to the seller, all by the deadline set forth in your Contract. You don’t want to lose the first week of your two-week inspections period scrambling to find any available inspector in your area – your inspectors should be well vetted and lined up.
In order to schedule your inspections, you’ll need to know what inspections you want performed. In New Jersey, the 4 most common inspections which almost every buyer undertakes are the: (i) general home inspection, (ii) wood-destroying insect inspection, (iii) radon test, and (iv) tank sweep. These should be your starting point. In many instances, the general home inspector can perform (i) through (iii), and then you’ll need to hire a separate tank sweep contractor to perform (iv). Some inspectors can perform all of (i) through (iv). But be sure to confirm this directly with your inspectors, so that everyone is clear as to who is doing what.
Other tests and inspections may be necessary depending on the features of a particular house. For example, a home with a pool would require a pool inspection. A home with a septic system would require a septic inspection. If a home has a well, the well water must be tested under the law, although this is typically paid for and undertaken by the seller, in New Jersey.
Keep the process moving forward efficiently – not only should you get your inspections done in a timely manner and send your inspection reports and list of repair requests to your attorney quickly, but you should also try your best to respond without delay at each interval of the negotiation.
You don’t want to feel rushed into making an agreement, but you also don’t want your inspections to drag on too long and potentially impact your deal timeline in other ways. Due to the nature of the contingency allowing you to get out of the Contract, a prolonged lack of an agreement in the inspections phase creates uncertainty, and ultimately, can push back your closing date.
Know your rights. Understand the inspection contingency.
On average, you will have 10-14 days from the date attorney review concludes to complete your inspections and also present your list of inspection-related repair or credit requests to the seller. The seller will then typically have 7 business days to review your requests and provide you with a response.
In a nutshell, the inspections contingency gives you the right to walk away from the deal and get your deposit money back if you are not satisfied with the results of your inspections and cannot reach an agreement with the seller as to the repair of actual defects. This is a highly protective, valuable provision that provides peace of mind. You won’t be forced to buy a lemon of a house with major defects that the seller is unwilling or unable to resolve, but you also aren’t entitled to have the defects repaired regardless of how obviously necessary those repairs may be.
Just as you can choose to end the deal if an agreement can’t be reached, the seller can also choose not to repair any of the items that you request. If the items are actual defects which have not been specifically “carved out” of the Contract and the seller won’t agree to fix them, your recourse is to terminate. You typically do have to make the requests, however, and give the seller the opportunity to cure – you can’t just end the deal immediately based on the findings in your inspection reports.
Some of the items that are often carved out of your inspections contingency during attorney review (meaning they are excluded from the purview of your inspections negotiations and cannot form the basis of you canceling the Contract), include, but are not limited to, the following: the repair or replacement of any item which is cosmetic, stylistic, aesthetic, or decorative (nail pops, minor settlement cracks, popcorn ceilings, pink tile); any routine maintenance item (gutters that need cleaning, bushes that need trimming, fences that need power washing); any upgrade (out of date fixtures, non-energy efficient windows, replacing window AC units with central air); or any system or item merely because it may have reached or exceeded its average life expectancy, provided that it is still working properly (a 30-year old hot water heater that still heats the water, for example).
Now let’s take a moment to talk about deadlines and waivers at this point. There are deadlines all throughout your Contract, including for your inspection contingency. There is also language in the Contract which seems to indicate that if you fail to furnish the inspection reports by the deadline, your contingency clause will be deemed waived, and if you fail to void the Contract after 7 business days of receiving the seller’s reply to your requests, you will have waived your right to cancel too.
You can pretty much throw all of that out the window (provided that your attorney has done what almost all NJ attorneys do and has amended the Contract during attorney review to remove the hard deadlines and automatic waivers). Let’s face it – real estate transactions are fluid with a lot of moving parts, so it’s in everyone’s best interests to inject some flexibility into the deadlines. However, despite the Contract dates being moving targets, you should always be working to adhere to the deadlines as much as possible, so you can close on time.
Delays can happen on both sides of the deal and are sometimes outside of the control of the parties themselves. You don’t want the seller to cancel the Contract on you because you’re a day late in providing your inspection reports and that kind of leeway needs to flow from both sides. So, what does that mean? There are no deadlines and things can drag on forever? Of course not.
You do have recourse for missed deadlines by way of what is called the “time of the essence” notice. If delays become unreasonable, your attorney can notify the other side that they have a certain number of days (usually 3 as agreed to during attorney review) to comply with the deadline or deliverable which is due or the Contract can be terminated. That usually gets peoples’ attention, but not often in a good way. It’s an aggressive move that should be reserved for only when absolutely necessary and not employed every time the seller is a few days late in responding to you. Be patient.
Be realistic. You’re not buying a brand new home.
Your hope as the buyer is that the seller will take care of every last issue noted in your inspection reports. The seller, on the other hand, is likely looking to do as little as possible while still satisfying the contingency and keeping you in the deal. So, how do you resolve these opposing viewpoints? Start by focusing on your one common goal – closing the deal. And keep your wits about you – what items would every buyer expect a seller to repair? Those are the items that the seller will likely be on board with also.
Throughout the entire home-buying process you have to be realistic and grounded and this is especially true in the inspections phase. A perfect home without defects does not exist in New Jersey or anywhere in the world for that matter. Even if you’re buying a custom home newly constructed from the ground up based on your precise specifications, it can never be 100% free of all defects. The sooner you come to this realization and accept it, the better off you will be. If you combine that realization with your understanding of the contingency, then you know that everything under the sun is clearly off the table.
What rises to the level of an actual defect exactly can be somewhat subjective which adds another layer of complexity to the mix, but a good rule of thumb is to apply basic common sense and a reasonableness standard. Would an average buyer acting reasonably believe that the presence of the particular defect and Seller’s failure to repair or remediate justifies terminating the Contract? Sure, if the HVAC is not working, the roof leaks, the basement floods and there is mold and asbestos and termites, it’s obvious, but what about when the defects are less material, but still highly important to you, or when there is large number of “little things” that need to be fixed?
Remember that all residential real estate in NJ is sold as-is, subject to any agreed upon repairs as between the parties, and this is clearly stated in your Contract. It is not your unequivocal right to have your repair requests fulfilled. The contingency right is what gives you the power to make the requests and in most cases what motivates the seller to address at least some of them.
Business is business. Knowledge is power.
The first step in creating a successful and more stress-free inspections process is removing your emotions. This is easier said than done, but the more you treat the negotiation for what it is – a business transaction – the more level-headed and reasonable you’ll be and the better outcome you’ll achieve. See the big picture first and foremost.
You would never go into a business deal and agree to something without being prepared, right? Same is true for the inspections negotiation involving possibly the single largest purchase you’ve ever made. You probably don’t know how much it costs to repair a large majority of the items the inspector found in his or her report, but you can find out and educate yourself. Obtain professional advice from your inspector, trusted contractors and even your real estate agent as to the cost and urgency of the items identified in your inspection reports, so you can then properly negotiate with the seller — i.e., so you know which items are “must-haves” and which items can be taken care of by you at a later date.
Once you’re able to understand the size and scope of the repairs at hand and their costs, you’re able to make informed decisions and requests in your negotiation, elevate your bargaining power, and save yourself a lot of grief and worry. Consider requesting credits over repairs so you can control the selection of the contractor and monitor the quality of the work from start to finish.
Managing your own expectations is half the battle.
It’s no secret that inspections are a critical part of the home-buying process, allowing the buyer to get a clearer picture of what, exactly, they’re purchasing and plan accordingly. You should welcome the opportunity to have a licensed professional take a closer look at the property you may be calling “home” in just a few weeks, and explain how things work (where is that water shut off valve again?), what issues are most pressing (“you should get a structural engineer in here right away to assess the situation.”) and what can wait (“sure, I think I can re-caulk the tub surround on my own one of these days.”).
But level-setting your expectations as you go into the Inspections phase is just as important as the actual inspections themselves. Going into your inspections with the right mindset — realistic, reasonable, and informed — will help ensure that the inspection contingency proceeds smoothly and doesn’t derail your purchase. Remember: it’s not a competition between you and the seller to see who “wins” the negotiation.
It’s a great feeling when the back and forth with the seller finally ceases and an agreement is reached as to inspection issues. At that point your attorney can inform the other side that “inspections are concluded” or “the inspection contingency is deemed satisfied”…and that brings you one step closer to your goal of getting to the closing table.