Pros and cons of sharing a seller home inspection with buyers
They say don't look a gift horse in the mouth. But when it's a Trojan horse, you do! - Eric Johnson
Usually, as part of the home buying process, the buyer hires a licensed home inspector to inspect the home so they know what they are purchasing. However, sometimes, the seller will pre-inspect the home before listing it for sale and share that home inspection report with interested buyers.
There are two specific uses of a seller home inspection:
- The sellers do a pre-listing inspection of their home for the purposes of finding and fixing any issues before putting the home on the market.
- The sellers do a pre-listing inspection of their home for the purposes of finding and fixing any issues before putting the home on the market AND intend to provide a free copy of the home inspection report to potential home buyers as a marketing strategy.
The usual home purchase procedure is for the buyer to do a home inspection AFTER the seller has accepted their offer. The buyer then has about 10 days to complete the inspection and get their home inspection report. The buyer can then either accept the home as-is, request some repairs and/or a price drop, or just walk on the sale and get their earnest money back.
The inspection will include the (1) home itself and the property it sits on (2) the sewer line from the home to the main sewer line in the street (depending on the age of the home) or alternatively (3) the septic system if the home is not connected to the sewer system. Note that in WA State at least, septic inspections are done after mutual acceptance and is paid for by the sellers.
In a hot sellers' market, like the current Seattle real estate market, it is very common for buyers to pre-inspect the home BEFORE making an offer. Even though they have no guarantee of getting the home, buyers are willing to spend hundreds of dollars for a home inspection report so that they can make their offer more competitive by waiving the inspection contingency and offering to buy the home as-is.
Sometimes, however, the sellers will conduct a pre-listing home inspection of their home and provide a free copy of those reports to potential buyers. I see this for about 10 to 15% of the homes that are listed for sale in the Seattle area.
"Excellent!" proclaim weary house-hunting buyers in unison!
But before you leap for joy, you should be-be aware that the pros and cons of seller-shared home inspection reports that can affect both the buyers and the sellers.
The advantages and disadvantages of a seller home inspection.
Advantages for the seller:
By pre-inspecting the home, the sellers can discover and fix any issues that they were previously unaware of before listing the home for sale. This reduces the seller's stress of chewing on their nails waiting for a buyer to discover major issues that might kill the sale.
Fewer home inspectors trampling through the seller's home. In a hot real estate market, with low inventories and desperate home buyers, a home that is priced and prepared properly will usually attract multiple offers. A few of those buyers will want to pre-inspect the home before submitting their offer. The buyers want to waive the inspection to make their offer more competitive in a multiple-offer situation.
I have been to a few Seattle home inspections and there are 3 other inspections taking place at the same time. It's a win-win for home inspectors because they get paid regardless of whether the buyer gets the home or not. So you can have 6 pre-inspections on a home but only one of those buyers is getting the home.
Although, as a seller, it's nice to know that your home is so appealing, you might be cringing at the prospect of all those inspectors poking at your beloved home, particularly if you own an older home. The thought of multiple people walking on your roof, running cameras down that 80-year-old clay pipe sewer line and the potential for damage is not very appealing. By providing a seller inspection report you will probably reduce the number of buyers who will want to do their own inspection.
Will likely increase the number of offers you get. It's a bit like poker. If someone doesn't raise the pot, everyone will stay in the game because it doesn't cost them any money to get another card and improve their chances of winning the hand.
When a seller provides a home inspection report, buyers who might have been scared off by being aware of other buyers doing their own pre-inspections will think: "Hey I've got nothing to lose and might as well make an offer anyway". Won't cost me anything to play!"
When the seller gets more offers, and buyers are aware of all those offers being submitted, it will usually force the serious buyers to increase how much they are willing to pay for the home. The listing agent will leverage those offers to get the best offer possible. And remember, the highest offer is not always the best offer.
Increases the likelihood that a buyer will agree to buy the home as-is. By providing a seller pre-inspection report, it increases the probability that a buyer will remove the inspection contingency from their offer. This means that the buyer agrees to buy the home as-is, will not ask for repairs, and will not be allowed to do an inspection after mutual acceptance.
Might help remove a buyer's number 1 way of getting out of the contract. If a buyer's offer is contingent on an inspection of the home after mutual acceptance, the sellers will be on tender hooks waiting for the results of that inspection. Will the buyers ask for repairs or a price drop or both?
Even worse, will the buyers bail completely? The inspection contingency is the easiest way a buyer can get out of a home purchase contract. The following sentence from that Inspection Contingency strikes fear into the heart of home sellers:
This inspection is contingent on the buyer's SUBJECTIVE SATISFACTION of inspections of the property and the improvements on the property".
Subjective satisfaction means that the buyer can, for any reason, no matter how trivial, bail on the sale and be entitled to their earnest money back. What's more, the buyer is not required to give the seller a reason as to why they are walking.
Now you can see why getting offers that are not contingent on an inspection are so appealing to home sellers.
Disadvantages for the seller
Liability, liability, liability! Did I mention liability? The major disadvantage of a seller home inspection being shared with buyers is that the sellers are opening themselves up to potential future liability. A bad home inspection report can come back to bite the sellers.
Say the buyer relies on the sellers' pre-listing inspection report to determine the condition of the home and property. The buyer decides to waive the inspection contingency and buy the home as-is without doing their own inspection.
The sale closes, and the buyer moves in. Two weeks later the buyer discovers a massive crack in the foundation behind the water heater that was not mentioned in the sellers' report. The buyer is not happy, to say the least. Who are they going to go after? Yup, you guessed it, they are probably going to sue the sellers.
Yes, the buyers agreed to waive their right to do an inspection but that decision was based on information provided by the seller!
Even though the buyers did waive their right to do their own home inspection, they could argue that they were provided with a bad inspection report and unreliable information by the sellers. "Your honor, the inspector should have picked up on that foundation issue!
The seller might discover a previously unknown major issue. By conducting a pre-listing inspection of the home, the sellers may end up finding a major and costly repair issue. The sellers will now have to either (1) make those repairs or (2) divulge them to the buyers on the seller's disclosure statement. Resist the temptation to try and hide those defects from the buyer.
The buyers might do their own inspection regardless: The seller could spend $500 on a pre-inspection and the buyer goes and does their own inspection anyway.
There is no guarantee that the seller will get an offer: Just because the sellers are offering a free home inspection report does not guarantee that they will get any offers. The home still has to be prepared, priced and marketed properly. If they over-price the home, they can kiss their $500 goodbye.
Advantages for the home buyer
Wohoo, don't have to pay for a home inspection. This can be especially appealing for buyers who have previously lost out on a number of homes in a hot market. It's not uncommon to meet home buyers in Seattle who have missed out on 4, 5 or 6 homes and have spent money on pre-inspections for each of those homes.
Missing out on a home is dispiriting enough. Spending hundreds of dollars when you don't get the home adds an extra layer of angst. So when a FREE seller home inspection report is made available, it can seem like a gift from heaven. A gift horse!
Buyers can strengthen their offer by waiving the inspection contingency. As mentioned above, sellers love offers that are not contingent on an inspection. In fact, sellers will often take a lower offer from a buyer who is willing to buy a home as-is versus a higher-priced offer that is contingent on an inspection.
Ran out of time or can't find an inspector: sometimes a buyer gets to see a home for the first time at a weekend open house and the sellers are looking at offers on Monday morning. Yes, the buyer and their agent should have been on the ball faster than that, especially in a hot real estate market where you have to make quick decisions. But hey, maybe they were relocating from out of town and just flew in?
Finding a home inspector on short notice can be difficult. I once had to call TEN, yes 10! Seattle home inspectors before I found one who was available on short notice. The availability of a seller home inspection can, potentially, be a helping hand.
Disadvantages for the home buyer
Is it a bad home inspection report or a reliable one? The buyers have no idea as to how reliable the seller's home inspector is. When a buyer hires their own home inspector they can choose who to work with based on their past experience and expertise or get some recommendations from their Realtor. It is important to know how to select a home inspector.
When a buyer relies on the seller's inspection report, the buyer has no idea if the inspector knows what they were doing and if they missed a bunch of critical items. Did he /she actually get up on the roof or just look at it from the ground? Did they crawl into the crawl space or just stick their head in the access door and take a picture?
Is the report any good? How detailed is it? Is it one of those anemic “check the box” reports or a highly detailed report with lots of verbiage and photos explaining any issues with the home?
In my experience, about 1/3 are bad inspection reports, 1/3 are OK but underwhelming and 1/3 are very good. There are some incompetent home inspectors out there and there are some excellent ones, just like us Realtors.
An experienced agent would be able to walk through the home with a buyer and point out the issues that are at least “immediately obvious” and if those items are not listed in the inspection report, then it’s not worth the paper it's written on. However, your agent is NOT a professional home inspector and you should not rely on their opinions.
SOME FINAL thoughts on sharing a seller home inspection with buyers
There are definite advantages to a home seller doing a pre-inspection of their home before listing it for sale, in particular, catching repairs that might have killed the home sale after accepting an offer. An ounce of prevention..
However, if the seller decides to share that same home inspection report with buyers as a marketing tool, they need to seriously consider the liability risks. A bad home inspection report can come back and bite the sellers after closing. Is it worth the risk? Also, home buyers need to be wary of depending on a home inspection that was coordinated by the sellers, even if the buyer gets to save some much needed money. Buyer beware!
HERE ARE SOME GREAT ADDITIONAL ARTICLES ON home inspection for buyers and sellers.
How to negotiate after a home inspection from Anita Clark.
What are the benefits of having a pre-listing home inspection? from Kyle Hiscock
9 things you should investigate during the inspection period from Ellen Pitts
8 reasons to get a home inspection before you buy a home from Xavier De Buck
8 costly mistakes sellers make from Michelle Gibson
The above article "The pros and cons of sharing a seller home inspection with buyers" was written by Conor MacEvilly. Conor is a Realtor living in the Ballard neighborhood of Seattle. He works with both home buyers and sellers in the greater Seattle real estate market and on and on the Eastside in neighborhoods like Redmond, Bellevue, and Kirkland.
Conor can be contacted directly via his cell at 206-349-8477 or via email at email@example.com. To learn more about what makes Conor tick, click here.