Real Estate News with Terri Taydus, GRI, CNA

BIG CHANGES AHEAD IN REAL ESTATE - Does This Affect You as a Buyer or Seller?

January 24th, 2013 5:24 PM by Taydus Taydus

IMPORTANT!

This is a longer post than usual, but it contains very important information that affects anyone looking to eventually buy or sell a home.

There are big changes ahead on the horizon for the way we buy and sell real estate. In an effort to reduce loan fraud and fully disclose the condition of the home being purchased or sold to the lender, Buyer’s Agents / buyers are now required to provide a copy of the Inspection Resolution to the buyer’s lender.

What does this mean to you?

In the past the Buyer’s Agents and buyers were not required to involve the lenders in the home inspection process by sending them copies of the home inspection, the buyer’s Inspection Objections, or the Inspection Resolution.

The new 2013 Buyer’s Inspection Objection and Seller’s Inspection Resolution now contain new verbiage that requires the buyer to send a copy of the Inspection Resolution to their lender.

Here is a sample of what is now included on the buyer’s Inspection Objection:


Here is a sample of what is now included on the seller’s Inspection Resolution:



So you may be wondering – "what’s the big deal?"

Here is how this could affect you as a buyer or seller:

  • As a buyer, you have a home inspection done so you will have more knowledge about the condition of the home you are purchasing
  • The Inspection Report comes back and there are several items that are listed including photographs, that need to be repaired. These items range from minor (such as a loose cabinet door) to major (such as replacing a roof), and everything in between.
  • The buyer looks at this and discusses with his / her Realtor, and together they write up an Inspection Objection to present to the seller. On this Inspection Objection there are items that that the buyer would like for the seller to fix.
    • Here is where the first big change comes into play - It is now being suggested that prior to sending the Inspection Objection to the seller, that the buyers discuss the inspection items with their lender.
  • The seller then reviews the buyer’s Inspection Objection with their Realtor and decides what they will and will not fix, and possibly even offer some alternatives. All of this is written up on the Inspection Resolution and sent back to the buyer for their review and signatures.
  • The buyer reviews the seller’s Inspection Resolution and either agrees to sign, or they can terminate the purchase contract if they are not satisfied with the seller’s resolution.

This is where things can get tricky. Once the buyer and seller have come to an agreement regarding the inspection items, and have all signed off on the Inspection Resolution, a copy of this Inspection Resolution is now sent to the buyer’s lender. The lender or the institution the lender is working with that will actually be lending the buyer the money to purchase the home, now looks at this Inspection Resolution and decides how it affects their risk.

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For example: Say the buyer and seller decide that the roof is not in the best of condition, but it may have a few years of life left in it. The buyer would like the seller to pay to replace the roof and the seller does not feel like they should absorb this cost. Both the buyer and the seller agree that if the seller pays to have the roof certified for 3 years of service life that this will be a fair compromise, and the buyer and seller come to an agreement. Both the buyer and seller sign off on the Inspection Resolution.

The Inspection Resolution is then sent to the lender, and the underwriting department reads it over. The underwriter for the lending institution feels that the roof is in too poor of condition to simply have it certified as they feel that this is not a good risk factor for the lender (i.e. should the lender need to take possession of the house they would need to then replace the roof in order to re-sell the home, or they may feel that the buyer may not be financially stable enough to take on the new mortgage payment and absorb the cost of a new roof 3 years down the line.) Whatever their reasoning, the underwriter puts a condition on the loan that the roof needs to be replaced before closing. The seller does not want to pay for (or is unable to afford to pay for) the new roof, and the buyer does not feel that they should pay for (or is unable to afford to pay for) a new roof. Even if the buyer plans to replace the roof once they own the home, they (understandably) do not want to pay for a new roof on a home that they do not yet own. The buyer and seller are now at a stale mate, and the buyer cannot secure financing until the roof is replaced. The purchase could terminate at this point in the transaction due to loan conditions. Both the buyer and seller loose.

This is just one example. There are several scenarios that could play out about any number of inspection items.

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So what can be done differently?

My best advice is going to be to the sellers. As a seller I would recommend that you have a pre-home-inspection done prior to listing your home. Yes, this will cost you a few hundred dollars (make sure to verify the cost of the home inspection with the home inspector). However, it may save you far more than that in time, frustration, and overall cost vs. having a buyer put an offer on your home and have the purchase terminate due to underwriting conditions based on the Inspection Resolution.

As a seller you would have a couple of options that could minimalize the items on an Inspection Resolution:

  • Make any major repairs found on the pre-Inspection Report prior to listing your home
    • Sellers, now is the time to be realistic. Lean on the advice of your Realtor regarding the market value of your home, and which repairs would be reasonable. Remember you hired your listing agent for their expertise, and this is the time to trust that you made the right decision.
  • Make any repairs that you are willing to make and list the home “as is” thus indicating that you will not make any further repairs to the home and eliminating the need for an Inspection Resolution

Please note that an “as is” listing could discourage some buyers from  looking at your home or giving it serious consideration!

  • In either case, provide a copy of the home inspection along with any work orders / receipts for any work you have had done on the home to any potential buyers.
  • The down side:
    • You will be absorbing the cost of the home inspection
    • Any information contained in the home inspection will now be known to you and therefore considered a material fact that will need to be disclosed to any potential buyer

My advice to buyers: Be realistic. Ask yourself “Are you paying a fair market value for this property?” “Does this value take into consideration the current condition of the property?” The “ask for all you can get” mentality may not be the best approach, as it may require the seller to include more items on the Seller’s Resolution that could be problematic to you obtaining a home loan. Look to your Realtor for guidance about the market value of the home you are purchasing, and what a reasonable request would be on the Inspection Objection. In the end, you are the one that gets to choose which items you would like to have the seller repair however unrealistic expectations of the seller could cost you the ability to purchase the home.

These changes will affect the way we buy and sell homes, and it is going to require a more realistic approach from both buyers and sellers. It may require the buyer and seller (via their Realtors) to communicate more to resolve more of the inspection items before the Inspection Resolution Deadline (and this may require a little more time on the purchase contract for the Inspection Resolution Deadline). The seller may need to take some of the risk and agree to complete any discussed repairs and provide work orders and receipts to the buyer to show that the work had been completed, and maybe even allow a pre-Inspection Resolution walk-through by the buyer, so they can see that the agreed upon inspection items have been completed prior to the Inspection Resolution Deadline (chances are these are repairs that will need to be made anyway regardless as to who purchases the home). In the end, this may not be a bad change, as it will open buyers and sellers up to cooperating with each other and working together for a common goal – so the sellers can sell their home and move on, and the buyer can buy the home of their desire. But the bottom line is that the world of real estate is constantly changing. The intent behind these changes is to protect the consumer and the overall housing economy. Some of these changes will present challenges to both buyers and sellers; this makes the role of a knowledgeable Realtor invaluable, and validates all reasons as to why you should chose to work with a reputable Realtor when you are considering purchasing or selling a home.

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Posted by Taydus Taydus on January 24th, 2013 5:24 PM

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