Unsatisfactory Inspection

With the market in the Grand Rapids area becoming more balanced, we are observing a number of buyers walking away from properties under contract.

Paragraph 15 of our West Michigan Regional Purchase Agreement gives buyers 10 days after the Effective Date (we’ll address Effective Date in a different post) to complete all “inspections and investigations.”

This time is considered sufficient for any buyer to conduct an inspection of the property, as well as anything related to zoning, ordinances, codes, and the ability to obtain homeowner’s insurance. A land survey contingency is addressed separately. It is not uncommon for buyers and sellers to agree on a shorter or longer inspection period, or to extend it as needed – for example to investigate further unexpected issues.

The Seller’s Disclosure Statement – which is mandated for residential dwellings of no less than 1 and no more than 4 units, per Act 92 of 1993 – can provide an initial understanding of potential problems affecting a property for sale. Are appliances, systems, or services, available and in working conditions? Has there been evidence of water in the basement? Is the roof leaking? These are just a few of the items sellers are required to disclose – with a few exceptions.

When a legitimate question is raised by buyers within the agreed timeframe, sellers are typically amenable to compromise and negotiations. For example, if pest inspection reveals presence of termites unknown to seller, or if buyer provides a precise quote from a reputable company for a disclosed basement defect, there is a legitimate expectation that both parties will work together to solve the issue and move forward with the transaction.

However, issues may arise when there is lack of attention to details or good faith on one or both sides of the transaction. It is not uncommon to encounter Seller’s Disclosure Statements that are left blank, or incomplete. Sellers are legally responsible for what they disclose. A roof in poor shape, mold, an unfit electrical system, a wet basement, a leaking pipe, all would be easily discovered during inspection, whether disclosed or not. However, any unexpected major discovery, if undisclosed, may raise suspicions on the true conditions of the property. In the very least it could lead to buyers heavily countering their offer, or walking away from the deal altogether.

In a real estate market heavily skewed towards sellers, buyers often agree to accept some flaws, whether disclosed or not, as part of the deal. When the market balances out however, buyers are no longer feeling the pressure of losing their only chance to secure a deal because they feel they have options. Therefore if any issue is discovered buyers might be inclined to avoid negotiations and end the deal within their ten days, believing there will not be repercussions. Most of the times this is correct, sellers and buyers agree, sign a mutual release, and buyers are refunded their EMD.

Problems begin when there is disagreement, for example if buyer perceives bad faith on seller’s part in disclosing potential issues. Or if seller believes that buyer is ending a deal due to frivolous reasons. The first item to be contended in these instances is the EMD. Without a mutual release, if the deal fails to close, the Broker holding the EMD will notify the parties on Broker’s intention to dispose of the EMD. If one or both parties objects in writing within 15 days after the notice, the issue could potentially end up in litigation. In short, walking away from a deal could be a costly and time-consuming decision.

In conclusion, when selling a property, sellers should complete the Seller’s Disclosure Statement to the best of their knowledge. When acquiring a property, buyers should place an offer only if they intend to close on the deal in all good faith. These simple steps will avoid major headaches later on, assure a pleasant and smooth transaction, and grant a rewarding experience on both sides.

Questions? As usual, I am extremely contactable at any time!

Happy house hunting!

GL

Giuseppe Lupis REALTOR®

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