I just listed my own property last month (it has now closed). It was on the market for two days, and we had a cash offer–and a bunch of others who wanted in. Since the house was pre-inspected, before we even negotiated the price I basically told the other agent that his client should look over the inspection report very carefully before deciding on a number, because it was the only report I cared to see or discuss. I encouraged him to get his own inspection (which, of course, he did). But I also told him that, after the inspection was done, there was no point on calling me unless it was to end option early or dissolve the contract. I was only interested in doing one round of negotiations and I didn’t want to get nickled and dimed for ridiculous stuff or for stuff that they had already known about when they made their offer (I also asked for a high option fee). He explained to me that that was just not the way that the game was played and that it was normal to always give a little something up after the buyer’s inspection (and that my option request was absurd). I told him that, in that case, his buyer would be throwing away both her option money and her inspection money, and invited him to look at other properties in the area, as we would not be budging on the price once we were under contract. Well, long story short, they initially walked away. However, a day later they came back and made their offer (a slightly lower but still generous option fee included), we negotiated, and they did their inspection. We closed for exactly what we had initially agreed upon, and I didn’t waste a lot of time with back and forthing.

Lesson: if you can convince your sellers to do a pre-inspection with a reputable and reasonable inspector, do it. It just gives them so much more power, even if there are flaws with the house. With a pre-inspection the seller can price their property accordingly, and the buyers can make the offers accordingly as well. You can also justify asking for the higher option fee. The amount of money the seller puts down for the inspection is totally worth the grief, stress, and disappointment they save themselves from later on. Plus, there are A LOT of mediocre inspectors out there, and it’s best to steer clear of ‘em (or at least insulate your clients from them)

There is nothing “shady” about a seller refusing to allow a buyer to cram an inspection report down his throat. In response to Keith’s post I write ” if the best negotiating strategy a buyer’s agent has is to try to force a seller to read the buyer’s inspection report, then, in my opinion, that buyer has a crappy agent who lacks effective negotiating skills.”

I stick by that.

That said, in the situation you describe. the seller is dumb to stick his head in the sand. But that’s an unusual and rare situation you’re describing and not one the typical seller will ever encounter.

I just had a negotiation last month (we were on the listing side) where the buyer agent tried to make the inspection report an item by item negotiation issue, sent the report unilaterally without asking first, and was asking for a $2,000 reduction in the original contract.

Our response never mentioned or responded to the inspection items at all, but simply negotiated a number. Seller countered with $500 and we didn’t need to look at the inspection report to do that. Buyer Agent got really angry. Kept wanting to discuss the inspection, and I just kept saying. “You asked for $2,000, we countered with $500. Ball is in your court. Seller thinks this is fair”. Agent demanded “Did you read the report”? My response, “you have our counter”.

Eventually a number was found and the final Amendment was completed, which simply added an amount to para 12(a)1b and made no mention of repairs. This is the outcome every good listing agent should be seeking for a seller. Agent said I was “difficult” to work with. My seller disagrees. I represent the seller.

Now, if the buyer had terminated, we would have looked at the inspection report and adjusted the Seller Disclosure accordingly if there was anything not already disclosed in seller’s previous inspection report, which had been provided with the Seller’s Disclosure.

Steve

Hi Chris,

You will have to disclose the condition and provide whatever supporting documentation you have. Unfortunately, a prudent buyer is not going to just take the house as-is without addressing a leaking drain isse, so it would be best to fix the problem before listing the home.

Good Luck,

Steve

Thanks for your comments. You’re very kind.

Yes, Sylvia and others have pestered me to “write a book” of blog articles and real estate anecdotes or “how to” stuff.

Thing is, after researching it I found that nobody makes money from books. It’s a very interesting thing. Unless you’re Hillary Clinton, or Jeremy Lin, or someone with a built-in, automatic name recognition and a reader base waiting, you don’t write a book to make money. The few “nobodies” that do break out with “hit” novels are like lotto winners, extremely rare. Or they are professional writers with a team of writers below them who churn out formulaic fodder for niche audiences (female romance readers, teen readers for example).

For most business people, a book is useful to leverage credibility and an existing business. It’s a tool used to gain exposure through paid (or free) speaking engagements, workshops, radio interviews, TV interviews, etc. that will serve to promote a brand, an idea, or the person (such as a presidential candidate), toward an underlying business goal. But the book itself doesn’t make money, it’s just a vehicle.

Since I’m not seeking any such exposure or ego-driven name recognition, or more real estate business, I would do a project like that only for fun and adventure. Maybe closer to retirement.

But I do appreciate your comment and the suggestion very much.

Steve

Several years after reading this article, I’m referring back to it. The wise approach you discuss here is now part of my approach as a listing agent, and I came back to re-read. You’re blog is like a reference manual for typical situations. Have you ever been approached by someone who wants to make a book from your top articles? I think it would be very useful for new agents to read it!

cheers

Garreth

Thanks for your comment. I’m not swayed or convinced. In fact, if the best negotiating strategy a buyer’s agent has is to try to force a seller to read the buyer’s inspection report, then, in my opinion, that buyer has a crappy agent who lacks effective negotiating skills.

Anyone can send an inspection report over and say “look at this”. To me, that’s unprofessional and lazy. If that’s what the buyer wants to do, then a good buyer’s agent will explain the pros and cons of that approach and remind the buyer that the word “inspection” isn’t even in the contract, and that the seller, in fact, has made no agreement to read the report. Instead, you just need to send an amendment asking for what you want.

I stand by the article, the philosophy and the additional comments I’ve made since posting it. But I do appreciate hearing the various viewpoints and opinions.

Steve

Say I am a buyer agent. I owe duties to the buyer just like you owe to your seller. Buyer inspected, still wants to buy the house, and buyer wants seller to know the entire context for the proposed amendment…what the buyer thinks important and what they don’t. Buyer authorizes agent to send inspection report and amendment all as one pdf to the listing agent. Buyer agent better carry out those wishes. Call this hardball or dirty pool if you wish, but it’s likely in the best interests of the buyer if the seller is “sacked” with the inspection report along with the the seller’s potential burden of having to disclose the report to other buyers. It is very effective leverage for the buyer, and if I don’t use that as buyer’s agent, then I may have some legal liability that I did not perform my duties to my client as diligently as I should have.

Now as the listing agent if you decide that you are going to use the above routine to basically not accept the report, that’s entirely up to you and your seller. But I think you have introduced a significant legal exposure for you, your brokerage, and the seller that can last far beyond the close of the sale. If my buyer goes away and the seller closes with another buyer, your seller might end up with more money in their pocket, but the higher price could well be defending and possibly losing at the court house if subsequent buyer is low on money and calls the tough smart lawyer who is low on money too. They might argue that you and or the seller “actively avoided” new knowledge of the property’s condition.

Most real estate litigation surrounds property condition, and it’s sometimes a messy part of the business to effectively manage that risk, and sometimes it costs our seller client money. But I think most sellers would agree that dealing directly with issues in inspection reports, and coming down on the “full disclosure” side of things is always in their best interests in the long run.

Spoken from a guy who’s been to the court house

Keith

I’m in the middle of an inspection right now on the buyer side of a deal. We are conducting several follow-ups with an electrician, HVAC person, plumber and a pool guy. Once we have all the data and info, we’ll do what I always want buyer agents to do when I’m the listing agent; we’ll prepare a simple addendum with a dollar amount and/or price reduction and not much detail.

If the listing agents wants to know more, I’ll offer to provide the inspection report and bids received. If they just want a verbal summary, I’ll offer it up and we’ll treat the information like layers of an onion. Often, a seller was already expecting inspection issues and the dollar amount seems reasonable and it’s settled with little fanfare.

The dispute with those agents who take a different viewpoint than mine is over the definition of “knowledge of” and “received” and whether a unilateral forcing of the “receipt of knowledge” has occurred when a buyer agent emails unannounced the inspection report as an attachment to the listing agent. Even different attorneys disagree about this.

I hold that I haven’t received it if I don’t actually accept it and view it, and neither has my seller. Others have a different opinion. But this only factors in if the deal craters and we have to decide what to do with that inspection report. No matter what you believe about any of this, a seller still has no obligation to read a buyer’s inspection report as part of the negotiations.

Steve

I have a question. You write: “If the agent “sees” it, it’s as if the owner “sees” it. It would be considered “received”. If the buyer backs out, the seller disclosure would have to updated.”

It would seem, though, that this goes against the point in the article and in your follow-up comments that “you can’t force knowledge upon someone,” something that should hold for both agents AND sellers.

Here’s a hypothetical situation. What happens if: the buyer instructs the agent ahead of time that he/she does not want to receive any inspection reports done by buyers. The agent tells the seller over the telephone that he/she has nonetheless received one and opened it (for argument’s sake, let’s say the buyer’s agent forced it upon the selling agent). Upon hearing this news, the seller instructs the agent NOT to send it along. I understand that, in further negotiations, the AGENT would be required to disclose the inspection report. However, in this scenario, would it not be wiser for the listing agent to dissolve the contract, given the reluctance of the seller to see the report and the resulting discrepancy between the agent’s knowledge of the property and the seller’s knowledge of the same?

It just seems to me that, as agents who have a duty of “obedience,” we have a duty to put our clients’ interests and desires ahead of our own. It would thus seem that, in instances where certain types of knowledge (i.e. inspection reports) are considered–rightly or wrongly–undesirable on the part of the seller, we have no choice but to comply with their wishes and protect them from the inspection report that they have pre-emptively expressed a desire not to see–even if this means we must recuse ourselves from the deal.

This all goes back to my previous comments about having a frank discussion about how inspection reports are going to be handled BEFORE listing the property. All of this, however, touches on a larger problem that neither TREC or ABOR adequately address but that you do bring up in your article: many buyers’ agents lack the etiquette to ask the simple question “how do you want to handle repairs/the inspection report” to the listing agent and in turn force knowledge onto listing agents, thereby putting the listing agents in very difficult situations (and their buyers).

If the agent “sees” it, it’s as if the owner “sees” it. It would be considered “received”. If the buyer backs out, the seller disclosure would have to updated.

If that didn’t happen, and a new buyer complained about something months later, the first question would be:

1) Did you not conduct your own inspection and, if so, why are you not discussing this with your own inspector if you think something was missed?

I’m not trying to convince every agent to do things my way. But the fact is, a seller does NOT have to read or look at a buyer’s inspection report at all. It’s not part of the agreement. It’s not part of the contract. Inspection isn’t even mentioned in the sales contract. So, it is in fact a seller’s right to say “I’m not interested in your inspection report, just send me a final proposed amendment if you want to change the contract before the Option Period ends”.

The discussion about what happens if that buyer and his inspection go away is a different discussion that the one about whether a seller has to look at the report as part of negotiation. The seller does not.

Steve

An agent/Broker has no Disclosure obligations unless they have actual knowledge about a material defect or condition that a seller is refusing to disclose. One of the main points I was making in the original article is that a subjective opinion from an unknown inspector is not “actual knowledge”.

The agent would have to inform the seller of seller’s disclosure obligations, but the actual disclosure is a product of the seller. If the seller doesn’t disclose something that the listing agents knows ought to be disclosed, the listing agent would need to say something about it to the other agent, in writing, to stay above board.

But this would apply only to “actual knowledge”, not guesses or unsubstantiated opinions provided by unknown third parties.

Steve

I think you’re over-thinking the Option Fee. It’s not material to the success of the negotiation or the transaction. A seller of a busted deal isn’t going to be any happier about keeping $300 than $100.

Steve

I agree that 500$ option fee is kind of crazy high but, if there are multiple offers, a buyer might come close to it. I certainly would for a house I really wanted, indeed I just did. Just as an example: there was another, slightly higher bid on the house I am buying this week. When I spoke to the realtor, he said that he wanted to go with us because we were cash buyers but that we had to come up with our price. Basically, I dug my heels in with our offer. At the same time, I gave the realtor my word that I wouldn’t ask for anything off after the inspection unless there was something major. (This is a house from 1958, so we kind of knew what the inspector was going to find). The seller’s realtor and the seller didn’t want to take me at my word until I offered a 400$ option fee. The listing agent was kind of bowled over by it (and advised me to consult with an already practicing realtor. I didn’t). Long story short, the seller went with our offer and took the exorbitant option fee I offered as a sign of good faith. In the end, we did a hydrostatic water test and there was something major with the house–a sizable leak. The seller got their own plumber out, they found the leak and got a bid. The seller is now assuming the repair of the leak (2000$). Our inspection report (which the realtor asked to see without consulting the seller or advising the seller as to the potential liability of seeing it, mind you) ended up acting as leverage. There is no chimney on the fireplace they are advertising, the water heater from 2008 is incorrectly installed, the vents don’t match the pitch of the roof, the windows don’t open, a few windows are broken etc. Obviously, there was also a lot of other little things in addition to these items. When the seller/realtor realized that any other buyer would have asked for a heck of lot more off their initial offer or be turned away, the seller was all too happy to capitulate with the leak.

I recount this because it was a gamble. Granted, I could have lost my 400$ option fee on account of insisting they pay for the leak. At the same time, the fact that I offered so much initially is what put our (somewhat pathetically low) bid to the top of the list. What is more, even in spite of my high option fee, I still had room to maneuver when something major was found.

Basically the seller knew that we had made a lowball offer. However, we had every intention of sticking to it, and our 400$ option money was the proof. The same could not be said for the buyer with whom we were in competition. We stuck to our word, and I like to think that all of the concerned parties are happy with the results. Basically, my frank conversation with the seller’s realtor about my disdain for the two-step negotiation phase was reassuring to the seller.

Again, it is unlikely that I would advise a client to follow my lead on this. But I do think that some buyers would be willing to pay a higher option fee if they really wanted the house. I also think that asking for more option money so that a buyer can differentiate his/her offer from another, similar offer is a completely legitimate request. Offering it could work to the benefit of the buyer. 500$ may be higher than most buyers’ agents will that their clients go. But 300-400$ is something that I think other buyers would seriously consider IF competition for the property were fierce.

Again, we’ll see if my approach works once my next investment property hits the market.

> Let’s say the buyer comes back with the one number and it’s, say, $3000. You say that at that point you may ask the buyer’s agent some general questions.

Yes, I’d ask some general questions, like, “how are you coming up with that number?”, and go from there.

It’s not that we want to stick our fingers in our ears, close our eyes and go “la la la la l a”, it’s really, bottom line, about preventing the seller from getting a flaky buyer’s inspection report hung around the neck of our seller.

If the listing is a 1982 house, we all know what sort of stuff that house is going to have flagged on an inspection report. It’s old, probably with some updates, but it’s 1982. I don’t need to see the inspection. I might ask the agent “is it mostly age related and the typical nick-knack stuff, or did the inspector find something major?”

Nija, good luck on your license examine. FYI – I’ve never seen a buyer pay $500 option fee. Well over 50% of option fees are still just $100, even for homes $500K and up. Sometimes we’ll see it at $200-$300, but I’ve never encountered $500 and I wouldn’t let my buyer pay that amount.

Steve