Home inspections are the No. 1 real estate deal killer: report
Most home buyers and sellers don’t think much about what might derail their purchase or sale. But here’s a sobering fact: One of every 20 sales contracts blows up along the road to closing. And roughly one of every four runs into an issue that delays the scheduled settlement.
These statistics come from new survey research conducted by economists at the National Association of Realtors, covering the period of December 2016 through February of this year.
Guess what’s the No. 1 real estate deal killer? Home inspections. Nearly one third of all terminated real estate contracts crashed and burned because of the inspection results. Inspections also ranked as the No. 3 cause of delayed settlements, accounting for 13 percent.
Many or most of those deal-killing or delaying inspections probably turned up legitimate defects that the buyers needed to know about. But some went a little too far. Take this example provided by Diana Dahlberg, broker and owner of 1 Month Realty in Kenosha, Wisconsin. She was representing home buyers who hired a local inspector. When the inspector examined the furnace, recounted Dahlberg in a post on ActiveRain, a real estate networking and educational website, “he went crazy saying there was a cracked heat exchanger,” then turned to the seller, who was nursing her baby, and said, “If you don’t want to kill your baby, you better get a new furnace right away.”
Both the seller and the buyers “freaked out” at hearing this. Later that day the buyers canceled the contract. On subsequent inspection, Dahlberg told me, “there was no crack in the heat exchanger.” There was nothing wrong. The sellers were so upset that they took their house off the market.
In an interview, Dahlberg told me that some inspections “have become a nightmare” for sellers and their agents. Nonetheless, she strongly supports the concept and value of home inspections by competent inspectors — “we do need that third party opinion” to be certain about the condition of a property. But they need to stay within strict professional norms and guidelines.
Walter Fish, owner of Bay Area Home Inspection LLC in the Marquette, Michigan, area and a certified and licensed inspector, agrees. He says that furnace issues are a “common example” of where inspectors exceed their appropriate scope. “Some inspectors have been known to call out [for replacement] older furnaces” that are operating normally. Why’s that a problem? Because under widely recognized professional rules of conduct, inspectors are not supposed to “determine the life expectancy of any component or system.”
Fish is a member of the International Association of Certified Home Inspectors (InterNACHI), one of the largest trade groups for the profession. The association’s “residential standards of practice” spell out the basic do’s and don’ts for inspectors. Among the tasks they are not supposed to perform, according to the standards, are assessing:
— The life expectancy of the property or any components.
— The market value of the property or its marketability.
— The “suitability” of the property for any use or the “advisability” of its purchase.
— Aesthetic issues.
Scott Godzyk of Godzyk Real Estate Services in Manchester, New Hampshire, described on ActiveRain one deal-damaging inspection he experienced that crossed all sorts of professional tripwires. A buyer hired an inspector he found online. The inspector’s final report noted among other problems:
— The roof is at the end of its 25 year life.
— The furnace hasn’t been serviced in years.
— The oven smokes when it’s turned on.
— Paint colors in several rooms “do not match.”
— Kids’ toys are a trip hazard.
All of which were curious findings since:
— The house was only 9 years old, so the roof was nowhere near its 25 year functional life.
— The furnace had been serviced during each of the preceding seven years, as the dated tags attached to it confirmed.
— The oven only smoked because the inspector turned it on without looking inside, where the sellers had a couple of plastic containers.
— Paint color match is not a matter for a home inspector.
— Kids’ toys do not convey with the house. Duh.
The takeaway here for you: As a seller, be aware of the standards of practice for inspectors. A good source is InterNACHI. As a buyer, search for certified or state licensed inspectors with solid references who will fairly and accurately report what you need to know about the house — not what you don’t.