When you’re buying an investment property, inspections are one of your best tools for protecting yourself.
They help you find hidden issues and give you leverage to negotiate with the seller.
Knowing how to navigate the inspection process can save you money and help you avoid costly surprises later.
The Inspection Process
In this section, we’ll guide you through the inspection process, from your initial showing to final negotiations.
This process ensures the property is in the condition you expected when you made your offer and that you’ve completed your due diligence before finalizing the purchase.
Inspect Property During Showing
This is your first chance to look at the property in detail. While you’re not hiring a professional inspector yet, you should keep an eye out for any obvious issues that could impact if you write an offer and what you offer based on what you can see.
Get Contract Accepted
Once your offer is accepted, the formal inspection period begins during the contract to close period. This is when you’ll hire a professional inspector to thoroughly evaluate the property for any non-obvious problems that you could not see during showing.
Inspect Property
During this step, the inspector will check critical areas like the structure, electrical systems, plumbing, and HVAC. Afterward, you’ll receive a report that details any issues they found.
After the inspection, you have several options based on the findings:
Object, Terminate, or Accept “As Is”
- Object – If significant problems are found, you can request repairs or concessions from the seller.
- Terminate – If the issues are too serious, you can terminate the contract and get your earnest money back.
- Accept “As Is” – If the issues are minor or manageable, you may choose to accept the property without asking for changes.
Inspection Objection Notice
If you choose to object, you’ll file this notice, formally requesting the seller to make repairs or provide a financial concession.
Notice to Terminate & Earnest Money Release
If you decide to terminate the contract, this step finalizes your withdrawal from the deal and ensures your earnest money is returned.
Inspection Resolution
If you objected, this document outlines the agreement between you and the seller, detailing what repairs will be made or what concessions will be given.
Negotiation
Once an objection is filed, you and the seller negotiate. They may agree to repairs, offer a discount, or refuse to fix anything.
Resolution or No Resolution
- Resolution – You and the seller reach an agreement, and the deal moves forward.
- No Resolution – If you can’t agree, you can either terminate the contract or withdraw your objection and accept the property as-is.
Withdraw Inspection Objection Notice
If you reach a resolution, you can withdraw your objection, confirming you’re satisfied with the negotiated outcome.
Terminate or Withdraw
If no resolution is reached, you can either terminate the deal or proceed with the purchase as-is by withdrawing the objection.
It’s important to note that your local real estate contract and customs may differ from what’s described here. Your real estate agent can help you understand how your local inspection process may vary—if at all—from this general overview.
Always consult with your agent and review your specific contract to ensure you’re following the correct procedures for your area. Your real estate contract and forms will explain and dictate exactly how this works for you; you should read those.
What Level of Inspecting Are You Doing Prior to Going Under Contract?
Before you go under contract, you’re doing a more general, informal inspection of the property. You’re not bringing in a professional yet, but you should be looking for any obvious issues, especially ones that could cost you a lot of money.
Focus on large-dollar problems, like structural concerns, roof condition, or major system failures. If you notice these during the showing, consider including them in your initial offer. For example, if you see the roof needs replacement as looking at it from the ground as you pull up to the property, you might offer less or request a credit for repairs upfront.
It’s important to act in good faith. If you saw the carpet was worn out before making your offer, it wouldn’t be reasonable to ask the seller to replace it during the inspection process. The goal of the inspection period is to catch things that weren’t obvious during your initial walk-through or that affect the safety and functionality of the property.
Dates are Important
Dates in your real estate contract are important, especially those tied to your inspection and due diligence periods.
Missing a deadline can mean you lose important rights, including the ability to terminate the contract and get your earnest money back.
Make sure you understand the deadlines for all your due diligence tasks. You might have different dates for things like the physical inspection, getting a survey, or reviewing leases and tenant estoppel statements (for rental properties). It’s important to track each of these separately to avoid missing any.
Each contract is unique, so always read through your specific agreement to see what deadlines are included. You should know exactly what’s required and when.
As the buyer, your role is to make sure each task—like inspections, surveys, or reviewing documents—is completed by its deadline. It’s your responsibility to schedule the inspections, review the reports, and decide if any issues are worth objecting to.
Your real estate agent might help by keeping track of these deadlines, scheduling inspections, and coordinating with the seller’s agent. They might also assist in reviewing documents and alerting you if anything needs immediate attention. However, you should still be proactive and double-check everything to protect yourself and your earnest money.
Your Right to Inspect per the Contract
Your right to inspect is outlined in your contract to buy and sell real estate. This gives you the opportunity to evaluate the property’s condition before fully committing to the purchase.
A typical contract might say:
“Buyer, acting in good faith, has the right to have inspections (by one or more third parties, personally or both) of the Property and Inclusions, at Buyer’s expense.”
Let’s break that down.
Good Faith
You’re expected to act in good faith during the inspection process. This means you can’t use the inspection as an excuse to back out of the deal for unrelated reasons. If you simply change your mind about the purchase, you can’t claim inspection problems unless there’s a legitimate concern about the property’s condition.
The inspection can cover many issues that you can terminate based on, which we’ll cover below.
One or More Third Parties
You can bring in experts to help with your inspection. This could include general inspectors, electricians, plumbers, or contractors, depending on what’s needed. While you’re free to personally inspect the property, it’s a good idea to hire professionals to ensure a thorough review.
However, showing the property to prospective tenants under the guise of an inspection wouldn’t be considered acting in good faith. If you want to show the property before closing, you can ask for permission through an Additional Provisions section in your contract.
Property and Inclusions
Your inspection rights extend to both the property itself and any “inclusions.” Inclusions are items that come with the sale, like built-in appliances or fixtures. We’ll go into more detail about inclusions later, as they are usually outlined in a separate section of your contract.
At Buyer’s Expense
You, as the buyer, are responsible for paying for any inspections. This could range from a basic home inspection to specialized evaluations, depending on what’s needed.
By understanding and using your right to inspect, you can make sure the property is in the condition you expected when making your offer.
What Can You Inspect?
When you’re buying a property, your right to inspect typically covers five key areas.
Let’s start by breaking down the first two, then we’ll take a slight detour to talk more about inclusions before moving on to the remaining three.
1. The Physical Condition of the Property
This is what most people think of when they hear “inspection.” It includes checking the condition of the roof, walls, and overall structural integrity of the property. You’ll also want to inspect the electrical systems, plumbing, HVAC, and other mechanical systems. These are all critical to making sure the property is safe and functional.
2. The Physical Condition of the Inclusions
Inclusions are items that are part of the sale, such as built-in kitchen appliances, light fixtures, or other features specifically mentioned in the contract. The condition of these items is also important to inspect, as they are part of what you’re buying.
You’ll often find a detailed list of inclusions in another section of your contract.
Inclusions
A typical contract usually has a section detailing what is included in the purchase price. This section outlines what items, known as “inclusions,” come with the property when you buy it.
A contract might say something like:
“The Purchase Price includes the following items (Inclusions):”
Let’s break this down into the types of inclusions you might find in your contract.
Attached Inclusions
In many contracts, attached inclusions are specifically listed. These are items physically attached to the property and included in the sale unless otherwise excluded.
For example it might say:
“If attached to the Property on the date of this Contract, the following items are included unless excluded under Exclusions: lighting, heating, plumbing, ventilating and air conditioning units, TV antennas, inside telephone, network and coaxial (cable) wiring and connecting blocks/jacks, plants, mirrors, floor coverings, intercom systems, built-in kitchen appliances, sprinkler systems and controls, built-in vacuum systems (including accessories), garage door openers (including ALL remote controls).”
Additional items like solar panels, water softeners, or security systems might also be listed as inclusions, especially if they are owned by the seller and not leased.
During your inspection, you’ll want to check all of these items. If they aren’t in working order or are missing, you can object as part of your inspection process.
Inclusions – Not Attached
Contracts might also include items that aren’t physically attached to the property but are still included in the sale.
For example, it might say:
“If on the Property, whether attached or not, on the date of this Contract, the following items are included unless excluded under Exclusions: storm windows, storm doors, window and porch shades, awnings, blinds, screens, window coverings and treatments, curtain rods, drapery rods, fireplace inserts, fireplace screens, fireplace grates, heating stoves, storage sheds, carbon monoxide alarms, smoke/fire detectors and all keys.”
These items are also subject to inspection. If something is missing or in poor condition, you can bring it up during the inspection period.
Other Inclusions
Some contracts may allow for additional inclusions that don’t fall under the standard categories. These are usually manually added by you and your real estate agent for things that you want to be included that are not part of the standard contract template.
A contract might state:
“The following items, whether fixtures or personal property, are also included in the Purchase Price:”
This could be where specific appliances are listed, such as:
“Currently Installed: Electric Range/Oven, Dishwasher, Refrigerator, Clothes Washer, Clothes Dryer, Microwave.”
If you added these to the contract then these items can also be inspected, and you can raise objections if they don’t meet your expectations or aren’t functioning properly.
Parking and Storage Facilities
Parking and storage facilities are sometimes listed as inclusions in your contract.
A contract might say:
“Use Only or Ownership of the following parking facilities: ____________; and Use Only or Ownership of the following storage facilities: ____________.”
As with the other inclusions, parking and storage facilities are part of what you can inspect and object to if they don’t meet the terms of your agreement.
Continuing: What Can You Inspect?
We already covered the first two areas you can inspect: the physical condition of the property and the inclusions. Now, let’s continue with the remaining three.
3. Services to the Property
A contract might say that you have the right to inspect the services provided to the property, which includes utilities and communication services. You’ll want to make sure essential systems like heating, plumbing/sewer, and electrical systems—both inside the property and those leading up to the property—are in good working order.
Beyond that, it’s important to verify that the utilities you need are available. For instance, if high-speed internet is critical for your tenants or yourself, you should confirm it’s available.
Water access and quality have also become increasingly important, especially in areas prone to shortages or restrictions.
If any of these services are missing or inadequate, you can raise an objection during the inspection period.
4. Proposed or Existing Transportation Projects
A typical contract might give you the right to investigate any nearby proposed or existing transportation projects. This includes roads, streets, or highways that could affect the property.
During your inspection period, check with local city, county, or state resources, as well as neighbors, if you’re concerned about any upcoming infrastructure projects. For example, a planned highway expansion could bring unwanted traffic noise or change the neighborhood dynamics. If a transportation project could negatively impact the property, you can object.
5. Other Activity, Odor, or Noise
The contract might also allow you to inspect for any other activity, odor, or noise—whether on or off the property—that could affect it or its occupants. This is a broad and very buyer-friendly provision.
It means you can object to anything that might reduce the property’s value or livability. For example, if you discover a factory nearby that produces strong odors or noise, this could be grounds for an objection.
The contract typically gives you the right to object based on “Buyer’s sole subjective discretion,” meaning the decision is entirely yours if something feels off.
Remember, you must submit any objections before the Inspection Objection Deadline to protect your earnest money. If you don’t object in time, you may lose the right to raise these concerns later.
While there’s no “I changed my mind” clause in the contract, it often provides buyers with considerable flexibility to terminate based on various unsatisfactory conditions, as long as they’re acting in good faith.
Your Options
Once your inspection is complete, you have three options:
- Accept the Property “As Is” – You proceed with the purchase without requesting any repairs or concessions.
- Terminate – If the inspection reveals unacceptable issues, you can choose to back out of the deal.
- Object – You can ask the seller to address specific problems by making repairs or offering financial concessions.
If you accept the property “as is,” there’s nothing more to do related to the inspection, and the deal continues. We’ll cover more advanced strategies for accepting “as is” later when we discuss negotiating philosophies.
For now, let’s focus on the option to terminate.
You Can Terminate
If your inspection reveals something unacceptable, you have the option to terminate the contract.
This is typically done through a written notice, which a contract might refer to as a Notice to Terminate:
“Notify Seller in writing that this Contract is terminated.”
To officially terminate, you’ll often need to submit two forms:
- Notice to Terminate – This is a unilateral form, meaning you alone can decide to end the contract based on a specific ability to terminate in the contract. In this case, the inspection.
- Earnest Money Release – This form requires both you and the seller to agree on how the earnest money will be distributed.
We’ll go over each form in more detail, but the main point to remember is that you don’t have to object to the property’s condition to terminate. If you find a legitimate issue during your inspection, you can simply decide not to proceed with the purchase.
You Can Object
If your inspection uncovers issues that you want the seller to address, you can file an Inspection Objection. A contract might say:
“Deliver to Seller a written description of any unsatisfactory physical condition that Buyer requires Seller to correct.”
This objection allows you to formally request that the seller fix specific problems with the property. Once you file the objection, you enter a negotiation phase with the seller. The seller may agree to make repairs, offer concessions, or refuse to address the issues.
Here are your two options if the seller doesn’t agree to your requests:
- Terminate – If you and the seller can’t come to an agreement by the Inspection Resolution Deadline, you can choose to terminate the contract.
- Withdraw the Inspection Objection Notice – If you still want the property despite the seller not agreeing to your terms, you can withdraw the objection and proceed with the purchase “as is.”
As the buyer, you must submit your objection by the Inspection Objection Deadline. If you miss this deadline, you waive your right to object or terminate based on the inspection.
We’ll go over a sample Inspection Objection Notice and how it works in more detail below.
You Can Resolve Your Objection
If you’ve submitted an objection based on your inspection, you and the seller will need to reach an agreement on how to address the issues.
This is outlined in a contract under something like Inspection Resolution:
“If an Inspection Objection is received by Seller, on or before the Inspection Objection Deadline, and if Buyer and Seller have not agreed in writing to a settlement thereof on or before the Inspection Resolution Deadline, this Contract will terminate on Inspection Resolution Deadline unless Seller receives Buyer’s written withdrawal of the Inspection Objection before such termination.”
Here’s what this means for you:
- If you and the seller don’t reach an agreement by the Inspection Resolution Deadline, the contract will automatically terminate.
IMPORTANT: If you still want to buy the property “as is” but haven’t reached a resolution, you must withdraw your Inspection Objection Notice before the Inspection Resolution Deadline to avoid the contract terminating.
Alternatively, if you and the seller agree to a solution before the deadline, you’ll formalize that agreement in writing using an Inspection Resolution form. This form outlines what repairs or concessions the seller will provide, allowing the transaction to continue.
We’ll cover the Inspection Resolution form in more detail below.
Parties Involved
Several key parties are involved in the inspection process, each playing a vital role in ensuring the property is properly evaluated before closing.
- Buyer (and their Real Estate Agent) – As the buyer, you drive the inspection process. You hire inspectors, review reports, and decide whether to object, terminate, or accept the property. Your agent helps coordinate everything and keeps track of deadlines, but your real estate agent is not an inspector and is not trained to inspect properties.
- Seller (and their Real Estate Agent) – The seller and their agent provide access to the property and respond to any inspection objections. They may agree to make repairs, offer concessions, or negotiate solutions. Some sellers may want to make repairs themselves or they may hire contractors to complete negotiated work; this is negotiated between you and the seller.
- Inspector(s) – The inspectors are hired by you, the buyer, to thoroughly examine the property. They provide a detailed report on the condition of major systems like electrical, plumbing, HVAC, and structure.
- Lender – If you’re financing the purchase, the lender must be informed about any material issues that could impact the value of the property. Serious problems discovered during the inspection could affect their willingness to loan you the money, as the property serves as collateral. Not disclosing issues could be considered loan fraud.
- Insurance Agent – If you discover damage during the inspection (like hail damage to a roof), the seller’s insurance may be involved to cover the repairs. Your own insurance agent might also want to know about issues that could impact the insurability of the property, though this is less common.
- Contractors – If any specific problems are identified during the inspection, you might need to bring in contractors for repair estimates and get additional information on the nature and severity of the issues. Sellers may hire contractors to fix issues you’ve negotiated.
Inspection Objection Notice
The Inspection Objection Notice is an important document in the inspection process. It allows you, as the buyer, to formally notify the seller of any issues you’ve uncovered and request repairs or concessions.
A typical notice might start with a statement like:
“THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING.”
This is a good reminder that if you have any doubts or questions, you should seek legal advice.
It’s also important to note that this form is not an amendment to the contract. Any agreement reached after submitting the objection would be documented in a separate amendment to the contract in the form of an Inspection Resolution.
The objection notice usually includes details like:
“This Inspection Objection Notice relates to the contract dated ____________ between ____________ (Seller) and ____________ (Buyer), relating to the sale and purchase of the Property known as ____________.”
The form allows you to outline your specific objections. You’ll notify the seller of any unsatisfactory conditions with the property or inclusions, then provide a detailed list of items that need to be addressed. If you need more space, you can attach additional pages to your objection notice.
You Must Tell Your Lender
If you’re wondering whether you need to inform your lender about issues discovered during the inspection, the notice itself often includes a statement reminding you:
“Resolution of inspection items or other items agreed to by the parties may alter the terms of the Contract and require disclosure by Buyer to Buyer’s lender.”
This note explains that resolving inspection items could affect your loan, and it encourages you to discuss these changes with your lender before finalizing any agreement.
Here’s why this matters:
- Changes to the contract could impact your loan approval, prevent you from getting the loan completely, cause delays in processing, or require additional inspections.
- If your lender is not on board with the final agreement, they may not provide funding, which could jeopardize your purchase.
In the end, it’s your responsibility to ensure the lender is informed of any material changes. If your lender cannot meet the terms of the contract because of unresolved inspection issues, you risk losing your earnest money or facing other penalties.
So, it is best to have these conversations with your lender during your inspection period where you can still get your earnest money back if you terminate.
Including the Inspection Report
The Inspection Objection Notice will usually include a section to indicate whether or not you are attaching the inspection report. You might see something like:
“Inspection Report ☐ Is ☐ Is Not attached.”
Including the inspection report can strengthen your case, especially if you’re only requesting the seller address major health and safety concerns. By showing the full report, you highlight that you’re not nitpicking every issue, just the ones that really matter.
However, some buyers are reluctant to share the inspection report, especially if they anticipate the contract might terminate. It’s important to note that sharing the report is typically optional. Keep in mind that if you inform a seller (and their real estate agent) of a material adverse fact about the property, they are obligated to disclose this information to future buyers. Therefore, sharing your inspection can actually strengthen your negotiating position, as the seller will need to disclose all these adverse material facts to potential buyers in the future.
What Happens Next
If you and the seller can’t reach a written agreement by the Inspection Resolution Deadline, the contract will terminate.
A typical contract might say:
“If Buyer and Seller have not agreed in writing to a settlement of the above matters on or before the Inspection Resolution Deadline, the Contract will terminate unless Seller receives written notice from Buyer withdrawing this Inspection Objection Notice.”
You’ll have to sign and date the objection notice, and there’s also a section for withdrawing the objection if you decide to move forward with the purchase “as is.”
Negotiating Philosophies for Inspections
When it comes to negotiating inspection issues, there are different approaches you can take. The strategy you choose will depend on your goals and how you want to handle the situation with the seller. Let’s look at three common negotiation philosophies.
- Win-Win – This is the ideal situation where both you and the seller come out satisfied. You, as the buyer, get important repairs or concessions and feel like you won, and the seller keeps the deal intact and feels like they’ve won as well. Both parties feel that their needs are met, and you work together toward a fair resolution.
- Play Fair/Nice – This approach is a bit softer than a strict win-win. You’re willing to compromise more and may not push as hard for every issue to be resolved. Instead of aggressively negotiating every repair, you might ask the seller for smaller concessions—sometimes even informally—appealing to their sense of fairness. While not as even as a win-win, it still keeps things moving in a friendly and cooperative way.
- Win at All Costs – In this philosophy, your primary goal is to get everything you want, even if it risks the deal. You may aggressively demand repairs, discounts, or other concessions without much concern for the seller’s situation. This approach can sometimes backfire, as it could push the seller to walk away or refuse to negotiate. It may also impact your ability—or your real estate agent’s ability—to be as effective and get deals in the future.
Now that we’ve covered different negotiation styles, let’s revisit your options when dealing with the inspection process.
Terminate
This is the simplest option. If the inspection reveals something you cannot live with and you don’t see a path to negotiate, you can terminate the contract. You walk away from the deal, often with your earnest money returned.
You’re not really negotiating here. You’d just terminating.
Object/Insist
If you want the seller to address issues, you’ll file an objection and insist that they fix the problem or give you a concession.
This route has three possible sub-options:
- Insist on repairs or terminate – You ask the seller to make repairs. If they refuse, you can terminate the deal.
- Insist on a discount or terminate – Instead of repairs, you ask for a discount on the purchase price so you can handle the repairs yourself. If the seller declines, you can terminate.
- Insist on repairs and/or discount or terminate – You might ask for a combination of repairs and a price reduction. If the seller doesn’t agree, you can terminate the contract.
You can utilize this as all three negotiating philosophies depending on what and how you ask for it.
Accept “As Is”/Ask
If you’re willing to accept the property as-is, you don’t have to formally object, but you can still ask the seller to informally consider concession. Sometimes this is asking for a seller to honor how they initially described and presented the property without formally objecting. This approach falls under the win-win or play fair/nice strategies.
Here are some ways to approach this:
- Ask for Repairs – You can informally ask the seller to fix an issue, explaining that you assumed everything was working when you made your offer. You’re still willing to buy the property regardless of their response, but sometimes sellers may agree to make things right out of fairness.
- Ask for a Discount – Instead of repairs, you could ask for a price reduction. Again, you’re not making it a formal objection, but the seller might agree to adjust the price so you can fix the issue yourself after closing.
- Ask for Repairs and/or Discount – You could propose a combination of minor repairs and a small price reduction without formally objecting. This keeps the tone more cooperative and avoids derailing the deal over smaller issues.
These tend to represent either Win-Win or Play Fair/Nice negotiating philosophies as this tends not to be a Win at All Costs strategy.
Objecting Tips
When objecting to inspection findings, it’s essential to handle the process carefully to protect your interests and avoid complications.
Here are a few key tips:
- Check with Your Lender – Before asking the seller to fix anything or requesting a price reduction, make sure your lender is aware of the situation and weighs in as to what will be acceptable and unacceptable to them. Lenders need to know about any major changes to the condition of the property since it affects their collateral. Not disclosing this information to your lender could be considered loan fraud, so it’s crucial to keep them in the loop.
- The lender may require the appraiser to revisit the property to confirm that the repairs were completed, which could add extra time to the closing process.
- Be prepared for possible underwriting delays if further verification is needed.
- Be Specific About What You’re Objecting To – When filing your objection, clearly define the items you want the seller to address. Reference specific pages and items from the Inspection Report to back up your claims. If possible, include photos from the report to visually highlight the issues. The more detail you provide, the easier it will be to communicate your concerns and negotiate a solution.
Being clear and transparent with both your lender and the seller can help ensure that the process moves smoothly and that there are no surprises later on.
Common Objections
When negotiating inspections, certain objections come up frequently. Understanding these common objections can help you focus on what’s worth addressing.
Loan-Required Repairs
If you’re getting a loan, your lender may require specific repairs before they’ll approve financing.
You simply can’t move forward with the purchase without fixing these, so it’s very common to object to such items.
Some typical examples include:
- Roof issues, like leaks or extensive wear
- Furnace problems or heating system failures
- Non-functioning kitchens or bathrooms
- For certain loans, even peeling paint or other health and safety issues may need to be addressed to meet lender requirements.
Expensive, Major Items
It’s also common to object to significant problems that you weren’t aware of when making your offer.
These are typically high-dollar items that could impact the property’s livability or require a large out-of-pocket expense to fix.
Common major objections include:
- Structural issues like foundation cracks or settling
- Non-functioning HVAC systems
- Electrical or plumbing problems
- Pests, mold, rot, or significant water damage
- Appliances that were included in the sale but aren’t working
What’s Uncommon?
You’ll rarely see objections to small, petty, or cosmetic imperfections. Minor wear and tear, paint touch-ups, small cracks, or drywall blemishes are not typically deal-breakers and are often considered part of normal property maintenance.
Inspection Resolution
The Inspection Resolution is the formal agreement between you and the seller on how to address issues uncovered during the inspection.
It’s a legally binding document that amends your original contract.
At the top of the Inspection Resolution form, you might see a notice that reads:
“THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING.”
This is a reminder to seek legal advice if you have questions about what you’re agreeing to.
Who and What?
The form will typically state something like:
“This Inspection Resolution amends the contract dated ____________, between ____________ (Seller) and ____________ (Buyer) relating to the sale and purchase of the Property known as: ____________ (Contract).”
This section identifies the buyer and seller, and it confirms that the agreement modifies the original contract, making it legally binding.
What You’re Agreeing to Accept
The form will outline what repairs or changes the seller agrees to make, often saying:
“Buyer and Seller agree that Seller, on or before ____________, will do the following to resolve Buyer’s Inspection Objection Notice:”
This gives a clear deadline for the seller to complete the work. It’s important to note that the form does not automatically give you, as the buyer, a new deadline to inspect or object to the work after it’s completed. If you want a follow-up inspection, you’ll need to request that separately.
Accepting the Property “As-Is”
If you decide to accept the property without requiring the seller to make repairs, you would typically add a statement like:
“Buyer has had property inspected and agrees to purchase property ‘as-is.'”
This section indicates that you’re moving forward with the purchase and not asking the seller to make any changes based on the inspection.
Otherwise, you’d list out all the repairs you and the seller agreed to.
Seller Pays
The form will also specify that the seller is responsible for the cost of any agreed-upon repairs.
You might see something like:
“Correcting or resolving the unsatisfactory physical condition set forth in this document will be paid by Seller.”
This is important because it clarifies that the seller bears the financial responsibility for making repairs.
In some cases, the seller might not have the funds available until closing, which could require some creative solutions, like negotiating to have the contractor do the work and having the work paid out of the seller’s proceeds at closing or through an insurance claim.
Not Done By Closing
In cases where repairs aren’t finished by closing, the form includes a Survival clause:
“If any agreed-upon correction requires action after Closing, the obligations agreed upon shall survive Closing.”
This means the seller is still responsible for completing the work, even after you close on the property.
However, enforcing this can sometimes be difficult without legal action.
Another Lender Warning
The form also includes a reminder about your lender, saying something like:
“This document amends the Contract. Buyer must provide a copy of this Inspection Resolution to Buyer’s Lender.”
It’s critical to send this to your lender. Your lender needs to know about the repairs or concessions to ensure it doesn’t affect your loan approval. Some lenders prefer to see price reductions rather than repairs. For example:
- “Sellers are providing a concession of $X.” or
- “Purchase price has been reduced by $X.”
Lastly, both you and the seller will need to sign and date the Inspection Resolution to finalize it as an amendment to your contract.
Best Practices
When negotiating inspections, there are several best practices that can help protect you as the buyer and ensure any issues are properly addressed. Let’s go over some key strategies you can use.
- Re-Inspect the Objectionable Items – Make sure you have the ability to re-inspect the specific items you objected to and confirm that the work was completed to your satisfaction.
- Licensed and Insured Contractors – Require that all repairs be done by a licensed and insured contractor. This ensures the work meets professional standards and reduces liability if something goes wrong.
- Require Copies of Receipts – Ask for receipts for any repairs made. This gives you proof of what was done and how much the seller paid, which helps verify the quality and scope of the work.
- Require a Transferrable Warranty – If possible, have the seller provide a transferrable warranty on any repairs. This allows you to benefit from any coverage if the repairs fail after closing.
- Get Owner’s Extended Coverage (OEC) Insurance – Consider getting Owner’s Extended Coverage (OEC) insurance from the title company. This insurance does several things including protecting you from mechanic’s liens, which could be placed on the property if the seller doesn’t pay a contractor. The cost of OEC is usually very reasonable and provides peace of mind that any lingering liens won’t become your problem.
- More Time for Appraisal – If repairs are needed, make sure you allow enough time for the appraiser to revisit the property and confirm that the work was completed. This is especially important if the repairs were required to meet your lender’s conditions for the loan.
- More Time for Loan Objection – Repairs may trigger additional underwriting requirements or cause delays. You may need more time for loan objection to accommodate these processes, so be sure to discuss this with your lender and build in extra time if necessary.
Terminating
If your inspection reveals issues that are too significant to move forward with the purchase, you can terminate the contract. You’ll likely want to terminate and request the return of your earnest money, assuming the contract is written to allow that.
However, it’s important to terminate before the Inspection Objection Deadline. If you miss that deadline, you lose the right to terminate based on the inspection and can no longer request your earnest money back. Make sure you’re paying attention to the Inspection Objection Deadline, not the Inspection Resolution Deadline, when planning to terminate.
Notice to Terminate
The Notice to Terminate form is the official way to end the contract. It allows you to select the reason for terminating based on the terms of your contract.
The form might say something like:
“Buyer notifies Seller that the Contract is terminated because the following are unsatisfactory to Buyer:”
When terminating due to inspection, you would typically check a box for the inspection of the property or inclusions.
This form requires your signature and the date of termination.
It’s important to note that this is typically a unilateral form, meaning you, as the buyer, can terminate without needing the seller’s approval or agreement. However, whether or not you get your earnest money back will depend on the terms of the contract and whether you met the required deadlines and conditions.
Earnest Money Release
The Earnest Money Release form is used to determine how the earnest money is distributed after the contract is terminated. It requires both the buyer and seller to agree on who gets the earnest money and how much each party will receive. This form formalizes the release of funds, ensuring there is a clear understanding of the amount being returned or retained.
If the seller (or the buyer) refuses to sign the Earnest Money Release form, it can lead to an Earnest Money Dispute. In that case, it’s recommended that you seek legal advice from an attorney to understand your options and how to proceed.
The form will also include a checkbox allowing the parties to mutually agree to release each other from any and all claims. This helps to prevent any further legal disputes over the contract or the earnest money after the release is finalized.
Negotiating Tips
When negotiating after an inspection, a thoughtful strategy can make the process smoother and increase your chances of reaching a favorable resolution.
Here are a few tips to help guide you through the process:
Include a Pre-Completed Inspection Resolution Form
You might consider providing a pre-completed Inspection Resolution form with exactly what you’re asking for.
- This approach can make it easy for the seller (and their real estate agent—especially lazy and/or frustrated real estate agents representing the seller) to say yes and move forward.
- However, some sellers and their real estate agents may find this presumptuous, so weigh the situation carefully before taking this route.
Consider Insurance Claims
If the issue is something the seller could address through an insurance claim—such as roof damage—consider asking whether they’re willing to file a claim.
- As the buyer, you might even offer to pay the deductible if it helps move the process along.
- This can be a win-win if the seller is short on cash but the repairs are covered by their insurance.
Offer A/B Options
Providing the seller with options can give you more leverage in negotiations. For example, you might ask for either repairs and/or a price reduction giving them a choice instead of just asking for one.
- Option A: A price reduction of $X.
- Option B: Completing specific repairs.
- Prepare an Amend/Extend or Inspection Resolution for one or both options to formalize the choice.
Leverage the A/B Option to Your Advantage
When giving these options, you can structure them to align with your preferences.
- If you prefer a price reduction, make the repair list more extensive, requiring higher-quality work with re-inspection terms and outs for you as the buyer.
- If you’d rather have the repairs done, set the price reduction higher than the cost of the repairs, so the seller is more inclined to complete the repairs.
These strategies give you flexibility and can create a more favorable outcome, whether you want to reduce the purchase price or ensure repairs are made to a standard you’re happy with.