No matter how much in love you are with a property, do not forego proper due diligence, including appraisal, title report, and a property inspection. What you have seen as you toured the property may hide some costly things you didn’t see, and only a thorough property inspection will provide you with a genuine picture of the property you hope to buy.
Some of the most crucial things buyers need to understand about property inspections include:
“As is” clause. Sellers that want to sell a property in its current condition without having to make any repair will typically include an “as is” clause in the contract. While a buyer will still have the opportunity to examine the property, the seller has made it clear that whatever issues you discover, you will be responsible for the repair. In the event a buyer finds a number of repairs that need to be made, he or she has the right to cancel the contract.
Capping costs. The seller is generally required to spend a certain amount — either cash or a portion of the sale price — to deal with any defects or damages determined during the inspection. A seller could attempt to limit the amount he or she is going to have to pay by adding a cap to the contract.
Deadline. Sellers commonly include a deadline for when the buyer has to conduct a property inspection. Buyers will want the deadline to be after the financing contingency is met, but should set the deadline far enough in advance of the close to prevent any eleventh-hour issues.
Repair timing. If repairs are needed, the buyer and seller could agree to either extend the close or place money into escrow for repairs made later. Buyers may want to choose the latter option since it provides more control over the way the repairs are made.
Working condition. Property inspection reports usually include all needed repairs, some of which may not be the seller’s duty. To steer clear of any delay or disagreement over these repairs, many contracts will have an inspection clause obligating the seller to deliver household appliances, HVAC, and other essentials in working condition.
Exceeding the cap. When the cost to fix items listed in an inspection report surpasses the cap set by the seller, the buyer or the seller may elect to either cancel the contract or agree to pay for repairs that exceed the seller’s cap.
Lender requirements. When the purchase is being financed, the lender will usually require that the buyer provide an inspection report and may also require that any necessary repairs be completed prior to closing.
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