Who Pays for Inspections and the Appraisal?
Once you have accepted an accepted contract with a buyer, it would great if we could simply say, "I look forward to seeing you at the closing table". But unless we have an all cash contract with no contingencies, there are a few hurdles you will be encountering before sitting at the closing table. Read below to see who normally pays for what, and to become prepared for what it takes to successfully get to to closing day.
Seller pays for: 1) Government Code Inspection, $25 to $80... and 2) Prior to July 1, 2013 the Residential Sale Contract specified for the seller pay for and provide a CLEAR Laclede or St Charles Gas Appliance Inspection. (N/A on all electric homes.) It has since been viewed in violation of anti-trust laws for the sale contract itself to specify all inspections to be done by the local utility company. But most all buyers and their agents are still writing this into the contract for the seller to provide a CLEAR gas inspection. If we have agreed to provide a clear gas inspection for the buyer, just know that it has been this way since the late 1980's. The $150 inspection fee will be charged on your next gas bill. If a re-inspection is needed for a failed item, the fee is $95. Although not typical, a buyer could order and pay for the Laclede Gas inspection.
If you have a Lawn Irrigation System, and your property is located in an area where an inspection is required (which it is in most all areas), paragraph #11a of the sale contract requires the seller to provide to the buyer, "documentation (dated within 12 months prior to closing) from a certified back-flow inspector, that the proper back flow prevention device is installed and functioning properly."
Buyer pays for: A) Personal Home Inspection, about $250 B) Termite Inspection $70, unless seller agreed to pay per the terms of the offer, and C) The Appraisal $350
Below are detailed explanations for each of the above items.
1) Code Inspection (Seller Pays $25 to $80) - Most areas in St Charles and Jefferson County do not require a code inspection. All of unincorporated St Louis County, and cities within St Louis county, such as Ballwin, Hazelwood or Florissant, do require a code inspection. Ballwin and Spanish Lake are 2 areas I know of that also require a Fire District Inspection to sell your home. The Residential Sale Contract states that the seller shall immediately order any required government code inspections. The contract also allows for negotiation on code repairs, however it is typical and expected by the buyer and their Realtor for the seller to make the repairs needed in order to obtain minimum code compliance for a re-occupancy permit.
A) Buyer's Personal Inspection (Buyer Pays about $250) - Per Paragraph #10, the buyer has the option to inspect your home within 10 days. Sometimes the buyer extends this to 15 days. It is customary to honor the buyer's date and time requested for the inspection. The inspection takes about 2 hours. The buyer almost always accompanies the inspector, and the buyer's agent may also attend. The agent or the inspector himself will use the lockbox for gaining access. It is recommended for you to not be present during the inspection. But if you're home, allow the buyer some privacy with their inspector. Upon having an inspection of your home, the contract does allow the buyer the option to terminate the sale contact, with earnest money returned to the buyer. This does not happen frequently, so don't worry too much. The buyer may also send out a roofer, plumber or electrician as well to investigate an issue further. Other inspections sometimes ordered by the buyer, at buyer's expense, include a Lateral Sewer Inspection (a video camera is run through your sewer line to inspect for a cracked pipe or tree roots $150 to $175), or a Radon Gas Inspection $125 to $150. The buyer also has until the end of the 10 days, the option to submit repair requests for any defects discovered in their inspection. This is done on a form called the Inspection Notice. Then another 10 day period begins for you and the buyer to reach an agreement on the repairs. Your compliance in correcting reasonable buyer requested repairs, should be viewed as a normal part of the home selling process. While we can certainly negotiate in an attempt to lessen your repair cost, it is often unwise to let a contract die over discovered defects. Agreed upon buyer repairs have run my sellers from as little as $100 to as much as $12,000. Some sellers have had to replace their roof, install a new furnace, and a new plumbing stack, plus miscellaneous repairs. Please know that you are not obligated to make these repairs, but you risk the buyer exercising their option to terminate if major defects are not addressed. Some, but only a handful of inspections, come back with no repair requests. It would great if I am able to call you and say: no repairs!
2) Gas Appliance Inspection (Usually Seller Pays $150) - Not applicable on all electric homes. If your buyer specifies in the sale contract for the seller to provide a gas inspection, you must provide to the buyer a clear gas inspection dated no sooner than 30 days before closing. Laclede requires someone present during the inspection on occupied homes or any property where personal belongings are still in the home. They do NOT set up a specific time. They offer 7am to noon, or a noon to 5pm appointment time preference. They may not require attendance on a completely vacant property, and we can place a combination lockbox on the property for access. If your vacant home has an ALARM, you will must have it deactivated for the inspection. Don't schedule the inspection too close to closing. If something would fail, we should allow some time for repairs. NOTES: If you have agreed to provide a CLEAR Gas Inspection, then you have already agreed to make any repairs that may be needed should your home fail the Gas Appliance inspection. There would be no negotiation on repairs for the gas inspection. Should your furnace or water heater fail, and they can't simply be repaired, you would have to install a new one. If an older gas range failed and a replacement part is no longer available, you would have to install another similar range. While most sellers install a brand new range, installing a refurbished similar range is acceptable. If a gas fireplace, space heater or gas bar-b-q grill is connected, these must also pass the inspection. If a gas dryer is included in your sale, this needs to be inspected for gas leaks as well. Gas supply pipes are checked for leaks, they must past a pressure test. For gas leaks, your gas will be shut off, even in the winter. But we can usually get a repair contractor to come out within 24 hours. If your gas would be shut off when the temperature is below freezing, you made need to quickly go to the property to turn off the water at the main to prevent a water pipe from bursting. A clear gas certification is required for the safety of the new homeowner.
B) Termite Inspection (Negotiable $70) - For contracts where the buyer is obtaining a loan, their lender requires a clear Termite Report. Although negotiable, to date I have not had a sale where the buyer paid for a termite treatment if one was needed. A complete treatment would run between $775 to $1100. If termite damaged wood is noted on the report, this has to be corrected as well. PLEASE READ: If the termite inspection doesnot find any live termite activity, but lists evidence of a prior infestation (such as mud tunnels, trail marks on wood or concrete from prior mud tunnels, termite damaged wood, or drill marks from a prior treatment), then the lender will require documentation that the property was treated within the last 5 years. If you don't have a paid receipt from a prior treatment within the last 5 years, a new treatment is needed in order to close, OR... if the property has an on-going annual warranty program in place with a Pest Control company, then no treatment is needed, but you must provide a copy of this warranty to the buyer. If you don't have an annual warranty, but have had a treatment within the last 5 years and you can't find the receipt, perhaps you can call the company who treated the home for a copy.
C) Appraisal (Buyer Pays $350) - For contracts where the buyer is obtaining a loan, their lender requires an acceptable appraisal. The appraisal appointment is typically set from about 10 days after acceptance, to hopefully no later than a week prior to the buyer's loan commitment date. The appraisal must
be valued at a price that is equal to, or greater than, our contract
sale price. If it comes back higher than contract price, the sale price remains the same. Should the appraisal come back with a value that is lower
than our sale price, the buyer's lender will lower the buyer's requested
loan amount by the difference. And unless the sale price is reduced,
the buyer will have to pay that difference at closing. Many buyers do
not have this extra cash, or they will no longer want to purchase a home
at a price above the appraised value. So in ALL cases, the buyer
will be asking for the sale price to be reduced to the valuation. Upon
such notification, you and the buyer then have 5 days to reach an
agreement on any adjustment to sale price. Sellers
typically always agree to the reduction so as to not lose the sale. FHA
appraisals are registered with an FHA case number and are in effect for 6
months. If our current deal died, and the next buyer was utilizing FHA
financing, they too could only get a loan amount that is based on the
existing FHA value (96.5% of value). Please don't worry too much about the appraisal results. I have had less than 30 low appraisals in my 1,000+ sales. If your property was priced right, you should not have to worry at all about a low appraisal.
Appraisal Repairs (Typically Always Paid by Seller) - Depending on established guidelines set for the type of loan being
secured by the buyer, an appraisal may also include a small list of
repairs required in order for the lender to be able to close the buyer's
new loan on your property. Upon our receipt of an appraisal that
specifies repairs, a 10 day period begins for you and the buyer to reach an agreement on these repairs. Although the appraisal rider allows for negotiation on appraisal repairs, they are typically completed by the seller. Otherwise,
the buyer would have to enter your home to make the repairs before
closing, and the buyer will not readily be willing to make repairs on a
home that they do not yet own. When the buyer is getting an FHA Loan, sellers often refer to the appraisal appointment as the FHA Inspection.
While both Conventional and FHA appraisals DO have a checklist of required
guidelines that the appraiser must check while visiting the property, I have
experienced repairs cited in only about 1 out of 4 appraisals. So instead of calling the appraisal visit an FHA Inspection - FHA Appraisal
is the more correct terminology. And if appraisal repairs are required, typically the repair list
is not a long one. They are often the some of the same repairs that may have come up
either the code inspection or the buyer's personal inspection. If an
appraisal repair is cited that you previously did not agree to correct
when negotiating defects listed on the Buyer's Inspection, this does not make
the buyer obligated to complete the repair. You and the buyer will have
to reach an agreement again since the repair has now become a requirement by the lender before the deal can go to closing.
If you have any questions regarding the above information, please just give me a call. That is what I am here for. Steve