Why Inspection Addendum is Important?

The Inspection addendum is contingency added to Purchase and sale agreement (commonly known as offer).

The inspection addendum is being used less in the current market because it's so competitive for home buyers. However, this is not a normal situation, so there is very little legal history for disputes when there isn’t an inspection performed.

Benefits of the inspection addendum

It's often being waived in order to make a buyer's offer more competitive, or the form is being skipped and substituted for a pre-inspection. It's certainly a benefit to the seller to have their home pre-inspected and not have a contingency that is associated with the condition of the property. Also, the pre-inspection will give the buyer notice as the what the actual condition of the property is. It also serves to make the offer more competitive as you reduce the number of ways a buyer can back out of a purchase. However, you're forfeiting information if you don't do a full inspection. And along with that protection, should you find that information that are detrimental to the overall value of the property, it may cause a big financial loss.

It's very important that a buyer go through with waiving the inspection, to make an offer with full knowledge of what they're about to spend a lot of money on. They need to know the condition of the property so that they are prepared for expenses that are likely to arise due to the condition. That's critical because in a competitive market, buyers are often extending much of the cash, or all that they have available towards the purchase of the property and the closing costs. This doesn't leave a lot of leeway to absorb large expenses that are unexpected, such as the types of things that you would find during a home inspection.

I think the form provides a really interesting line from the very beginning. That is the inspection contingency is “subjective satisfaction” for all the inspections of the property. This is the main reason why it's beneficial to sellers to have a pre-inspection or have this form waived. “Subjective” means that the buyer can walk away if they feel like it.

The only people that are allowed to inspect the property are licensed home inspectors, the buyer themselves or someone that is exempt from licensure by the state. Those people exempted include licensed architects, engineers, electricians, plumbers and pest inspectors. But those inspections have to be limited to their area of expertise. That means a pest inspector isn't qualified to do a full inspection of the property if they are not licensed as a home inspector, but they can, of course, inspect for pests.

The buyer, if they have an inspection contingency, can bring in as many inspectors as they deem necessary to perform a thorough inspection of the property.

Buyers should not provide the inspection report to the seller, unless it's requested.

Remember, don’t provide additional details of the report, even if it’s needed to trigger additional inspections of the property. If that’s necessary to allow additional time for the buyer to further investigate the roof as an example, only send along the portion of the report stating the recommendation for further inspection by the initial inspector.

Electrician inspecting

This form has a description of all the things the buyer is allowed to inspect, and they should consider. For example, what is the structural condition, the mechanical condition, general condition of the property, considering zoning codes, inspecting for hazardous materials, checking for pests and doing any soil or stability inspection that might be needed should the property be on a slope or insecure ground. If there are any questions, buyers should engage with plumbers, electricians, roofers etc. If a buyer looks into all of these items, they are going to know very well what they're getting into prior to purchasing the property and as a result, know what expenses they are likely to incur at least in the near-term. And as mentioned earlier in a video this can help the buyer budget regarding their cash outlay as they compete with other buyers for properties.

That's why it's important to include the form 35, inspection contingency even if buyers waive the contingency.

If form is included in an offer, it's critical to follow timelines for notification or you lose the benefits of the contingency. This means brokers have to notify the seller in an appropriate amount of time as to the decision of the buyer after inspection. The same applies to the seller: they have to follow all the timelines, or they will be forfeiting some of the rights they have under the contract.

Another key provision in the inspection contingency is it allows the buyer and licensed inspectors access to the property. Any access allowed to the property is in the contract be it for the inspection or for appraisal. That's why we have to include either a financing contingency or evidence of funds when there's a loan involved because appraisers will need access to the property. So as a purchaser they need to recognize that should they not include the addendum, they will not have the right to inspect the property.