The Insanity of Real Estate Inspection Renegotiation

It’s really smart to bring in experts when facing major decisions and a purchase of high value real estate is no exception; however, there is a widespread trend, while not illegal, that many real estate professionals consider unethical: the inspection renegotiation.

 Stop The Insanity!

Somewhere between Suzanne Somers’ Thigh Master and PX-90, Crossfit and Pilates, there was Stop The Insanity, one of the first TV exercise programs by Susan Powter to go viral. It’s the same message that arises today, only that it involves the real estate industry and the conspiracy of using inspections to renegotiate prices after an agreement has already been negotiated. The insanity is the exaggeration of inspection reports which are couched in language that convinces buyers to renegotiate the price of an already negotiated transaction, based on careful worded language, overlaid with a 72 hour time deadline that does not allow each party enough time to gather the facts to make a rational decision.

Case Study

For example, we present to you, as Rod Serling would from the Twilight Zone, a case study of an inspection of the foundation of a typical home uptown, where the buyer asked for a $6,700 discount from the agreed upon price, due to the following opinion from a well-known, highly regarded, residential and commercial inspection company:

We noted long spans at the intermediate sill sections in the right and left of the crawl space. These long spans can lead to sagging of the floor framing, and we recommend that additional piers be installed between the existing piers to reduce the spans on these sills. (approximate costs to cure – $4,000 to $6,000)

Any prudent person would read this language and come to the conclusion that there is a major deficiency and ask for a price reduction of $4,000 to $6,000 off the purchase price, since this was an problem that could not be detected at the time the original purchase price was negotiated.

Here is a 2nd case study of a foundation report from a well-known inspection company:

The foundation piers have typical minor age settlements and tilting. A few of the piers have minor soft and eroding mortar, but repairs are not currently required. Many of the center piers shims do not extend the full length of the piers, which provide uneven or inadequate bearing surface. We recommend that these shims be replaced with noncompressible materials such as slate or concrete block. (approximate cost of repairs $300)

The insanity is that these two opinions are written by the same inspector on the same house.

One opinion states repairs are “not currently required” and the other states “we recommend additional piers be installed” at a cost of $4,000 to $6,000. The problem affects real estate agents, operating with the highest ethical standards to represent their clients, when they try to help their clients renegotiate the price to compensate their clients for the inspections reports’ deficiencies, when in fact the deficiencies that agents are fighting for are misrepresented.

NAR, LR, and NOMAR Don’t Help Real Estate Agents With This Dilemma

The Code of Ethics that might address this issue for real estate agents should be written by the National Association of Realtors; however, there is no guidance of how agents should address the issue. There is no Code of Ethics for Louisiana Realtors, but they do have bylaws, but they do not address the issue. The same applies to  (NOMAR) New Orleans Metropolitan Association of Realtors, which has no Code of Ethics but does have bylaws.

Home Inspectors Code of Ethics

There is guidance for home inspectors, regulated by the Louisiana State Board of Home Inspectors, who produces a Code of Ethics and a Standard of Practice, which states the inspection report shall include:

 

Hidden away in Chapter 5, section B-10, Title 46, Part XL, of the Professional and Occupational Standards of the Louisiana State Board of Home Inspectors is the only language that establishes guidelines on the issue:

The LHI shall be objective in his reporting and shall not knowingly understate or overstate the significance of observed conditions.

 

 Where Is The Incentive

Any good company CEO, parent of a 4 year old or owner of a chocolate lab knows that in order to change behavior, all you have to do is make sure your incentive creates the behavior that matches your goal. The disconnect is that the incentive for the inspection company is to get hired to produce a report that has language which justifies to the purchaser a renegotiation in the price of the property. The real estate agent is an unknowing participant in this process, especially if they are impassioned about looking out for their client’s best interest. The loser is the real estate industry, which suffers from the disappointment by both buyers and sellers at the process, because both are relying on their experts and examine the same situation and come to the insanity of opposite conclusions.

A Few Good Men and Women

There is an underground movement to change the system. Some real estate agents, both commercial and residential, are aspiring to higher ethical standards where they discuss with their clients how inspections are predisposed to look for problems and since New Orleans is almost 300 years old, it is different from Houston where old properties are measured in single digit years, and buyers must distinguish between acceptable wear and tear and major deficiencies.

What Can You Do To Make Your Voice Heard

If you have an opinion on whether agents should or shouldn’t encourage their clients to renegotiate inspections, or have a life experience to share, email the President of the National Association of Realtors, Chris Polychron, your opinion. With your input, the organization that represents you can incorporate your voice into the Code of Ethics that guides our industry to a higher level of service to our clients.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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