Inspections and Disclosures – A Critical Part of Any Escrow

The inspection and disclosure process is a critical part of any escrow.  The California Purchase Contract specifically allows a buyer to fully inspect any property they intend to purchase.  The State of California also dictates specific mandatory seller disclosures, and these are usually delivered within the inspection period.  The standard inspection time frame per the California contract is 17 days.  The inspection period is routinely extended to 21 days in the Arnold and surrounding areas, to accommodate some of the unique inspections that may be required in a mountain area.

Due to the extended periods it often takes to sell a house in today’s slower market, most sellers are not ordering pre-listing inspections.  This means the buyer will order, and need to pay for any and all inspections they choose.

Once escrow is opened, your Cedar Creek Realty agent will send you a menu of inspection choices, and will carefully review which inspections they recommend you obtain.  Most buyers will choose to have: septic inspection, pest inspection, full home inspection, roof inspection, furnace and A/C inspection, wood stove and chimney inspection.  In addition, your agent will order a report from the Calaveras County building department regarding square footage, septic information and whether the house has a final.  Your agent will have incorporated in the purchase contract a request for the seller to have a licensed engineer locate and flag the corner pins of the lot.  Your approval of the lot dimensions falls into the inspection time frame.  As the 21 day inspection period progresses, your agent will deliver all inspection reports to you for review and discussion.

First-Time Tip: If you get an alarming inspection report on a home you’re buying or selling, don’t panic. Until you see the whole picture clearly, you’re not in a position to determine whether you have a major problem to deal with or not.  Some inspections call for a “further inspection” if additional information is needed.  If an inspection result is controversial, a second opinion can be sought.

Keep in mind that there is an element of subjectivity involved in the inspection process. For example, two contractors might disagree on the remedy for a dry-rotted window: one calling for repair and the other for replacement.

Recently, a home inspector stated that many of the windows seals were compromised on the double pane windows in the house.  When a window expert was called in to confirm, it was discovered that most of the windows were just dirty, causing a shadowing that made it appear the panes were bad.  The buyers and sellers were able to come to agreement on who would pay for the small number of windows that truly did need replacing.

It can cause confusion when inspectors are wrong. But it happens; Inspectors are only human. In a recent transaction the home inspector speculated that the roof would need to be replaced soon, but when the roof inspection was done, the roofer stated that the roof had another 8 – 10 years of life remaining.  Sometimes getting another opinion can resolve the matter, but your Realtor can advise you on the most reliable inspectors, or seek clarification of a confusing or inaccurate inspection report.

Another item that falls within the inspection time frame is the appraisal.  If you’re getting a loan, your lender will have ordered an appraisal as soon as they have received the fully executed purchase contract.  If the subject house appraises for at least the contracted purchase price, all is well.  However, if the house appraises for less than the agreed upon price, you as the buyer will need to either obtain a price reduction from the seller to meet the appraised value, order another appraisal or come up with additional cash to close the escrow.

In addition to ordering your inspections during the 21 day time frame, you will receive numerous disclosures from the seller.  The primary seller-required disclosure is the Transfer Disclosure Statement, or TDS.  This is a 3-page form on which the seller will list features of the house (type of water heater, utilities, # of garage door openers, etc), as well as listing/detailing any known defects regarding the home or property.  The seller is also required to answer a list of 16 yes or no questions regarding such things as whether they’ve remodeled the house, whether there are neighborhood noise or nuisance problems, whether there has been any major damage to the home due to flooding, earthquake, fire or landslides, etc.  The final page of the TDS is completed by both the buyer’s and the seller’s agents.  The agents involved are required to perform a careful and thorough visual inspection of the property and document the inspection in writing, usually on an Agent Visual Inspection Disclosure form (or AVID).

The seller may also be required to provide the buyer a Seller Property Questionnaire (you must ask for this in the original contract, so make sure your agent requests this) or SPQ.  This is an additional 4 pages of questions and information about the property including such things as: disaster relief or insurance claims, pets on the property, easements or title issues, any inspections previously done, whether there has been a death of an occupant on the property, etc.

Two final items you’ll want to be aware of during the inspection and disclosure period are the Preliminary Title Report and the marking of the corner pins.  Once escrow has been opened, the title company will send you a Preliminary Title Report.  This report will show how title is currently held, whether there are liens or loans against the property and in what amounts, whether the property taxes are current and paid up, etc.  Your agent will help you interpret this information and make sure that when you close escrow, you are taking the property over free and clear of any liens or debt.

The property corner pins are usually marked by a licensed engineer during the escrow period in the case of a mountain property purchase.  Lots in this area are often irregularly shaped and vary greatly in size.  Most lots do not have fences marking their borders, so this is a very important thing for your agent to ask the seller to do.  The cost for pin marking runs from $200 to $300 and is usually paid for by the seller.  This is not a formal survey – those can run $3,000 to $4,000, but simply identifies where the metal corner markers are, and puts an orange flag on them so they’re easily spotted.  The engineer also provides a map that has been stamped with his certification and date.  You as the buyer should walk the corners of the lot with your agent during the inspection period to make sure you have a clear understanding of the parcel size and boundaries.

Once all inspections have been completed, and you have thoroughly reviewed ALL reports and disclosures with your agent, you have a choice of three courses of action:

–      If all inspection reports have come out perfectly clean and there are no repair items that need to be addressed, your agent will prepare a “Contingency Removal” form for you to sign.  This will effectively end your inspection period and convey to the buyer that you find the condition of the house totally acceptable, and are ready to move forwards to closing escrow.

–      If you have discovered things about the house or property that you believe need to be corrected or repaired in order for you to be comfortable buying the house, your agent will prepare a “repair request” for you to sign.  This request asks the seller to either 1) order and have completed specific repairs in escrow or 2) provide the buyer a credit to pay for the cost of repairs after close of escrow.  The seller does not have to approve of the request; they may counter with a different proposal or reject the repair request entirely.

–      If you have discovered negative information about the property that causes you to have a change of heart about buying the house and you’ve decided not to move forward, your agent will prepare a contract cancellation form and escrow will be cancelled.

In Closing: The process of ordering inspections and interpreting the results of inspection and disclosure reports is crucial to your full and complete understanding of the condition of the home and property you are purchasing.   Making a repair request or cancelling the escrow due to inspection results are very important steps that require the expertise of a licensed real estate professional to successfully negotiate.