By Stephen L. Fussell, Senior Consumer Protection Officer
Brokers who represent prospective buyers and tenants should advise and encourage their clients to order inspections, tests and surveys for properties they wish to buy or lease and may furnish them with lists of licensed, competent service providers to contact and hire.
A broker should never discourage a client from ordering an inspection, test or survey, even if it is not required. Inspections are an extremely important part of the purchase process for every buyer and in some commercial leasing transactions for tenants. Moreover, a prospective buyer’s refusal to order an inspection in an effort to save money may have dire consequences in the long run.
Following are guidelines to consider in the management of the inspection process:
Observation – A broker should help a client understand that a home inspection is a visual inspection and not technically exhaustive. An inspector will be less likely to detect a defect that is not visible and cannot guarantee that a defect will not arise in the future from a hidden cause. An inspection, when conducted, is simply an observation of the condition of a property at that time.
Broker Presence – Ideally, a broker should be present for each inspection and encourage client presence as well to receive the inspector’s explanations of findings. If a general inspector suggests that a more in depth inspection is warranted, (i.e., for a defective heating/cooling system, mold, foundation cracks or other structural, mechanical, electrical or plumbing system defects, or any situation that could affect the health or safety of the buyer/tenant), then the broker should encourage clients to determine through additional inspections whether a serious problem exists and its potential resolution. Advise clients as well to complete inspections early enough during the due diligence period to give the seller/landlord an opportunity to respond to a repair request before the period expires.
Due Diligence Period – If a client is unable to attend an inspection, the broker should assure client receipt of the full inspection report during the due diligence period. If it appears that the period will expire before the client can conduct all necessary inspections, the broker should advise requesting an extension of the period and possibly the closing date. If the property owner consents to an extension of the due diligence period (and the closing date), the extension should be written into the contract. If the property owner declines, then the client must decide whether to terminate the contract/lease.
Owner Inspections – If a seller or landlord obtains an inspection and provides a report of it, a broker should nevertheless advise clients to srongly consider securing their own inspection to assure a qualified person makes a timely inspection. This guidance also applies when a general (home) inspector suggests further specialized inspections. The buyer/tenant generally will be better protected by hiring a specialized inspector instead of relying upon an inspector hired by the property owner.
Confidential Report – A home inspection report is usually considered confidential between the inspector and the client (i.e. the person for whom the inspection was performed). However, once the client or the client’s agent gives a copy of the inspection report or a summary of the report to an opposing party or that party’s agent, the document is no longer confidential.
Owner Repairs – If a property owner performs requested repairs following an inspection, the buyer/tenant would be wise to order a re-inspection to verify that the repairs were actually and properly repaired. While the buyer/tenant will incur an inspection fee, it would be well worth the cost for peace of mind. A broker should obtain copies of all invoices for repairs and should use reasonable efforts to confirm that the persons who completed the repairs were properly licensed in their fields.
Post Closing Repairs – Brokers should enxcourage clients to insist upon the completion of all repairs prior to the closing/move-in date. If the parties agree that a repair will be made after the closing/move-in date, the buyer/tenant should insist upon a written escrow agreement prepared by an attorney that includes a deadline for completing the repair, sufficient funds to cover its cost, and the terms under which the escrowed money will be released.
Broker Duty to Inspect – When a broker lists a property for sale or lease, the broker has a duty to visually inspect it for defects since they may become material facts requiring disclosure unless corrected by the owner prior to listing. However, some defects including, but not limited to structural defects, high radon levels, the current or prior use of synthetic stucco and the presence of bacteria or toxins in well water must be disclosed by a listing agent even if the seller has taken steps to resolve or reduce the problem(s). This is due to the potential harm of these defects and the fact that there may not have been sufficient time or ability to determine if the repair truly fixed the problem. The buyer should be informed and able to have that repair evaluated. Similarly, brokers who represent buyers and tenants should also visually inspect properties and disclose to their clients any defects they observe and discuss whether further inspection by a professional is warranted.
For more comprehensive coverage of home inspections, licensees may review the 2001-2002 Mandatory Update Course manual and the Commission’s brochure, “Questions and Answers on: Home Inspections”, available for viewing or purchase on the Commission’s website, www.ncrec.gov. For questions not addressed by these publications, brokers may contact the Commission’s Regulatory Affairs Division (919-875-3700) or the Home Inspector Licensure Board (919-662-4480). An article listing the types of inspections, testing and verifications available to buyers was published in the May 2015 issue of the Real Estate Bulletin.
Statutes, Rules and Useful Forms
Home inspectors’ inspection and reporting requirements are defined in Article 9F, Chapter 143, North Carolina General Statutes and in the rules, Title 11, Chapter 8, North Carolina Administrative Code. Knowledgable brokers can help clients form reasonable expectations about the process and to identify features and structures that may be exceptions to a typical inspection. Accessthem on the Home Inspector Licensure Board’s website, http://www.ncdoi.com/OSFM/Engineering_and_Codes/HILB.aspx.
Professional Services Disclosure and Election forms for commercial (No. 585) and residential (No. 760) transactions, published by the North Carolina Association of REALTORS®,, provide excellent tools for documenting inspections and adding specialized inspections and/or testing of any structure/feature not required such as an outbuilding or in-ground swimming pool.
No Substitute for Inspection
Brokers representing buyers applying for a VA loan should explain that a VA appraiser will visit the property to determine its value, not its condition. While the appraiser may identify some defects and the buyer’s lender may require the correction of those defects as a condition for loan approval, a visit by a VA appraiser is not nearly as thorough as an inspection by a licensed home inspector and should not be characterized as being the same. A VA appraisal is not a substitute for a home inspection.
This article came from the Feb 2016-Vol46-3 edition of the bulletin.