In this month’s question, I’ll provide my opinion on the merits of buyers conducting home inspections, as well as a lesser known practice of seller’s inspections.
As the market has changed over the past year, one of the most notable differences is that buyers typically have more time to make their decisions and gather information when considering a home. One question I frequently get asked is whether it’s worth paying for a home inspection. In my experience, the answer is always yes.
When considering the merit of a home inspection, it’s important to understand two concepts. First, the legal principle of Caveat Emptor (buyer beware) applies. It is the buyer’s responsibility to conduct a reasonable level of due diligence when investigating a home.
Second, one should understand the two types of defects that can exist in a home and the seller’s duty of disclosure regarding them. A patent defect can be detected using reasonable measures (a.k.a. a home inspection). These defects could include broken appliances, pest infestations, water damage etc. A seller has NO duty to disclose patent defects, regardless of whether they’re aware of them. A latent defect significantly affects the usability and/or value of the home and cannot be identified through reasonable measures. Examples of these could include the home being used to illegally grow marijuana, cracks in the foundation or improper electrical wiring and plumbing. A seller has a legal responsibility to disclose such defects, but only if they are aware of them. A good home inspection should be able to find some evidence of these problems should they exist.
Obviously when purchasing a home, awareness of any patent and latent defects is critical. This information will likely influence offer price, as well as your capacity to negotiate. Inspections often aid in long-term home ownership budgeting as they reveal age and estimated remaining life of key components including appliances, furnaces and air conditioners, hot water tanks, roofs, drainage, piping and so on. Recently I have helped several buyers renegotiate the selling price following an inspection. As today’s market tends to favour buyers, sellers are often more compelled to concede to price adjustment requests rather than risk losing the deal. A notable example of this was a recent inspection that discovered moisture damage behind some tiles in the master bathroom. Proper remediation would require a significant bathroom renovation, so we were able to negotiate a $20,000 price reduction to compensate for this. As this was a latent defect, it would mean the seller would have to make disclosure to any future buyers. They decided to accept the reduction rather than risk returning to market and having to tell any prospective buyers of the damage.
“What about if our home is brand new?” Often the assumption is made that new homes should be in perfect condition. This is usually not the case. Whether its strata (condo or townhome) or a detached home, there can often be issues. Although new homes are protected by the New Home Warranty, the last thing a buyer wants to deal with is submitting claim after claim in their new home. In a recent new home inspection, my clients discovered some defects
in the roof installation as well as an air conditioning system that leaked into the crawlspace. They had these remedied at the seller’s expense prior to moving in.
“What if we’re gutting the place?” An inspection can often reveal important information that could influence the cost of renovations. The presence of asbestos, knob and tube wiring, or structural deficiencies can greatly affect renovation budgets.
A less common practice is the seller inspection. With the changes in the market, I have found this to be a potentially helpful tool when listing a home for sale. Although not appropriate in every scenario, I would encourage discussion with your REALTOR® when selling your home to weigh the possible merits. The potential upside of a pre-inspection by a seller lies in them being aware of any items which could become contentious points in a negotiation. Knowledge and understanding of defects in their home could help dictate asking price. It can also help mitigate surprises if the buyer conducts their own inspection. The stress of dealing with proposed price adjustments from a potential buyer came often be reduced. The potential double-edged sword arises when a seller must legally disclose any latent defects they’re aware of. Referencing the previous example above, if a seller’s inspection discovered moisture damage behind tiles in the master bathroom, they would have to disclose this to all buyers. Listing the home at a lower price could be necessary to facilitate a sale.
Please don’t hesitate to reach out if you have any questions about inspections, or if you’re considering selling your home and would like to evaluate if an inspection could be a wise strategy.