In our market, as in many others, the traditional process of selling a home usually goes something like this: the property is listed for sale, a buyer makes an offer, the home goes under contract, and then the buyer pays to have a home inspection performed.
The problem with that sequence is simple: Nobody really knows what the inspection is going to uncover.
Until the inspection is completed, the seller, the buyer and the real estate agents may all be unaware of issues that could affect the sale.
After more than 30 years in real estate, we’ve learned that surprises during a transaction are rarely a good thing.
That’s one reason we’ve become strong believers in discussing pre-listing inspections with our seller clients.
Why Wait Until After You Have a Contract?
Home inspections can uncover everything from relatively minor maintenance items to major problems involving the roof, electrical system, crawlspace, foundation, plumbing, HVAC or other components of a home.
When those discoveries happen after a buyer is already under contract, emotions can quickly enter the equation.
Buyers sometimes panic. They may overestimate what something will cost to repair or replace, ask for a substantial price reduction or credit, or decide they simply aren’t comfortable proceeding with the purchase.
Inspection issues are one of the common reasons real estate contracts fall apart.
The seller, meanwhile, may be just as surprised by the findings. Now there is a contractual deadline, a concerned buyer and very little time to investigate the problem, obtain estimates and decide what to do.
We believe there is a better approach:
Gather the information before marketing the property for sale.
What Is a Pre-Listing Inspection?
A pre-listing inspection is simply an inspection performed before a property is offered for sale.
Depending on the property, appropriate inspections and other due diligence may include:
- Home Inspection — A general evaluation of the home’s major systems and components, including electrical, plumbing, HVAC, roofing, structural components and more.
- Septic Inspection — An evaluation of the condition and operation of a private septic system.
- Termite/Wood-Destroying Organism Inspection — Looks for evidence of termites and other wood-destroying organisms and related damage.
- Water Analysis — Tests well water for certain bacteria or other contaminants, depending upon the testing performed.
- Well Inspection — Different from a water analysis. This evaluates the physical well and related equipment rather than simply testing the quality of the water.
- Chimney Inspection — Particularly helpful when a home has a wood-burning fireplace or other chimney system.
- Engineer Inspection — If cracks, settlement or other possible structural or foundation concerns are present, an evaluation by a qualified engineer can provide valuable information.
We also sometimes include surveys and title searches in the broader discussion of pre-listing due diligence. They aren’t technically inspections, but completing them early can uncover boundary, encroachment, easement, lien or title issues before they become problems during a transaction.
Not every seller needs every inspection. The appropriate approach depends on the property, its age, condition, systems and individual circumstances.
Knowing Gives the Seller Options
Finding a problem before listing a home doesn’t necessarily mean the seller has to fix it.
That’s an important distinction.
Once the seller has the information, he or she can make an informed decision. The seller may choose to repair an item, replace a component, obtain additional professional opinions or estimates — or simply offer the property as-is.
But at least everyone knows what “as-is” actually is.
If a home inspection identifies an older HVAC system, a plumbing issue or a problem in the crawlspace, for example, the seller can decide how to address it before a buyer ever enters the picture.
More importantly, prospective buyers can be given that information upfront.
The First Offer Can Reflect the Property’s Actual Condition
This is one of the biggest advantages we see with pre-listing inspections.
If buyers are allowed to review inspection reports before making an offer, the issues contained in those reports generally aren’t surprises later.
The buyer knows what he or she is considering purchasing and can make an offer accordingly.
Compare that with the traditional process. A buyer makes an offer, negotiates the contract, gets excited about purchasing the home — and then receives a lengthy inspection report identifying issues nobody was expecting.
Suddenly, the parties may be negotiating the transaction for a second time.
The buyer wants repairs, credits or a lower price. The seller believes the original negotiated price was fair. What may have started as a relatively minor repair issue can turn into a major disagreement.
With a pre-listing inspection, we’re trying to move that information to the front of the transaction.
Our goal is for the buyer’s initial offer to take the known condition of the property into consideration. That can substantially reduce the likelihood of a second round of negotiations.
Can the Buyer Still Have an Inspection?
Absolutely.
Providing a pre-listing inspection doesn’t prevent a buyer from hiring his or her own inspector, and a buyer may still choose to include an inspection contingency in the offer.
However, when an inspection report has already been provided, our position is that the buyer’s offer should take the items disclosed in that report into consideration.
If the buyer chooses to obtain another inspection, the discussion can then focus primarily on significant items that may not have been identified in the original report rather than reopening negotiations over conditions the buyer knew about before making the offer.
That’s a much different situation from everyone learning about the property’s condition for the first time after the contract has been signed.
What About Septic, Termite and Well Water Inspections?
This is an area where sellers can sometimes misunderstand what is actually required.
In our market, standard or customary sales contract language commonly provides for the seller to furnish items such as a septic inspection/report, termite or other wood-destroying organism report, and well water analysis when applicable.
However, that does not mean Virginia law universally requires a seller to provide and pay for each of these inspections in every residential transaction.
Contract provisions can vary by region and Realtor association, and many of the terms are negotiable, including which party pays for an inspection and how recently it must have been performed. Certain loan programs may also have their own inspection or property-condition requirements.
The important distinction is between something being customary in a contract and something being required by law or a particular loan program.
Our experience has been that when sellers have recently completed appropriate inspections before listing, many buyers are willing to accept those reports. Other buyers may prefer to obtain their own inspections at their own expense.
Either way, much of the information about the property is already available.
Transparency Builds Buyer Confidence
There is another benefit that is harder to put a dollar amount on: confidence.
When prospective buyers see that a seller has invested money in inspections and is willing to make the reports available, it sends an important message.
We’re not trying to hide anything. We want you to understand what you’re buying.
That transparency can put buyers at ease.
Buying a home is a major financial decision, and uncertainty creates hesitation. The more information buyers have, the more comfortable they can become making that decision.
Inspection reports, septic information, water test results and other applicable documentation can also become part of a comprehensive listing package.
Instead of simply presenting a house for sale, we’re presenting buyers with information they can use to make an informed decision.
That can help a property stand out from competing listings where very little information is available upfront.
Pre-Listing Inspections Can Be Especially Valuable With Multiple Offers
One of the greatest advantages can occur when a property generates multiple offers.
When buyers are competing for a property and comprehensive inspection information has already been made available, we’ve seen buyers become much more comfortable waiving inspection contingencies as part of their offer.
That’s a huge benefit to a seller.
An offer without an inspection contingency eliminates one of the biggest uncertainties between contract and closing.
It doesn’t happen in every transaction, of course. But providing buyers with good information upfront can give them the confidence to write a cleaner, stronger offer.
Yes, It Can Be a Sizable Investment
We understand why some sellers hesitate.
A home inspection combined with septic, termite, well, water, chimney or other appropriate inspections can add up to a sizable upfront expense — especially before the property has even been offered for sale.
We don’t require our seller clients to obtain every possible inspection.
What we do believe is important is explaining the potential benefits so sellers can make an informed decision.
Compared with the value of the property being sold — and the potential cost of a failed transaction or a last-minute negotiation — the expense of appropriate pre-listing inspections can be relatively small.
A problem doesn’t become less expensive simply because you don’t know about it.
In fact, it can become much more expensive when someone else discovers it at the worst possible time.
The Seller Keeps More Control
Timing matters tremendously.
Suppose an inspection discovers a significant issue before the property is listed. The seller has time to investigate it, obtain estimates, decide whether to repair it and choose contractors without the pressure of a contractual deadline.
Now imagine discovering that same problem three weeks before closing.
The buyers are concerned. Their agent is involved. Contractors may need to be scheduled quickly. The lender could potentially become involved depending on the issue. Everyone is working against a deadline.
And the buyers may request a repair, credit or price reduction that costs considerably more than the seller might have spent addressing the problem beforehand.
Or the buyers may terminate the contract if their contingency allows them to do so.
Finding problems early doesn’t make them disappear. It gives the seller time, information and options.
Can Pre-Listing Inspections Put More Money in the Seller’s Pocket?
We believe they can.
That doesn’t mean an inspection automatically increases the value of a property or guarantees a higher sales price.
Instead, the financial benefit can come from several directions.
Pre-listing inspections may reduce uncertainty for buyers, help produce stronger initial offers, reduce the likelihood of costly renegotiations, allow sellers to address repairs on their own timetable and potentially encourage buyers to waive inspection contingencies.
Most importantly, they can help prevent a transaction from falling apart after weeks of being under contract.
The cost of inspections can seem significant when viewed as another expense of selling a home. But compared with the potential financial consequences of an unexpected problem discovered after contract, that upfront investment can be money very well spent.
Knowledge Is Usually Less Expensive Than a Surprise
Selling a home isn’t simply about putting a sign in the yard and hoping everything goes smoothly.
Preparation matters.
After more than three decades of seeing problems discovered after contracts were signed — sometimes shortly before closing and sometimes resulting in lost sales — we’ve learned the value of finding out as much as possible before marketing begins.
Pre-listing inspections can identify problems on the seller’s timetable, reduce surprises, build buyer confidence, create a stronger listing package, reduce the possibility of renegotiating the sale and potentially save sellers thousands of dollars.
They aren’t necessary the same way for every property. But we believe they’re worth discussing with virtually every seller.
Because when it comes to selling a home, it’s usually better to know before you sell.