Welcome to this month’s installment of Dear Urbaneer, where I set aside time each month to share real estate queries from clients and offer my advice. This time, I’m helping a Seller who wonders if having a presale inspection report completed is really worthwhile, especially when it is considered a 'Seller’s market'.
As I prepare to put my home on the market, I wonder if it is really necessary to offer Buyers a presale inspection report? It seems like bidding wars are everywhere, Buyers are motivated, and that there will likely be strong demand for my house. After all, it won't prevent me from getting top dollar for my home, right?
Seeking Top Dollar
Dear Top Dollar:
Great question - and one that has likely occurred to many Sellers getting ready to bring their homes to market for sale. There is no question that there are lots of Buyers house hunting right now in Toronto, and a scarcity of listings. But acquiring top dollar for your home is a little more complex than simply having demand outpace supply.
In fact, having a presale inspection report completed is actually a very useful tool in ensuring a smooth and expeditious sale - all while trying to get a maximum sum.
There Are BIG Benefits Of A Presale Inspection Report For Both Sellers & Buyers
When a real estate market is hot, and Sellers are holding the power because of strong demand and short supply, it would seem on the surface that undertaking some of the activities and costs associated with putting your home on the market aren’t necessary. In fact, a lot of Sellers commonly believe that if there are Buyers waiting in the wings, why would one bring in a building inspector to identify all the existing deficiencies and potential problems associated with their home when it might dissuade those Buyers from acting on a purchase?
The truth of the matter is that the best strategy Sellers should embrace when selling their property is also the most sensible, which is offering their property for sale with full disclosure. This means not only presenting their property in its best light - including paring down and tidying up - and having their realtor coordinate floor plans, professional photos, and counsel on the benefits of staging, when necessary - but also by taking the time to represent their property accurately and to the best of their knowledge and belief, by providing a comprehensive due diligence package outlining recent upgrades and renovations with associated warranties, a summary of property costs and operating expenses, a copy of a survey for a freehold dwelling or a status certificate for a condominium, as well as a presale home inspection report.
If the objective is to get top dollar for your home, demonstrating pride of ownership comes when you provide prospective purchasers a comprehensive top-to-bottom detailed summary of your property, and a presale inspection report plays an important role in achieving this. After all, every property - even newly constructed ones - will have issues and deficiencies, so the Seller who is willing to disclose this is ultimately earning the trust of the Buyer. And, as a realtor who has been navigating bidding wars in Toronto for two decades, providing a due diligence package with a presale inspection report is essential if you want Buyers to feel confident enough to aggressively compete against each other in a bidding war.
It’s important to remember that a property inspection, while comprehensive, focuses mostly on the visual inspection of the structural and functional components of a home. There are a lot of things that are not covered in a typical property inspection - so whether you're buying or selling - it is wise to be informed about the parameters of an inspection. I wrote about this in my post: Dear Urbaneer: What Is And Isn’t Covered In A Home Inspection?
It’s also important to find a property inspector that is accredited and vetted. Not all property inspectors are equal, as I share in my post Termites For Our Anniversary where a property inspector I knew to make errors missed the obvious (believe me, after 28 years selling Toronto real estate you get to know many of the players in the shelter industry). Incidentally, it serves no one to engage an inspector who is not credible, and while there are Buyers who are suspicious a property inspector may be representing the interests of the Seller when a presale inspection report is provided, the real reason one brings in a third-party (often paid by the realtor, and not the Seller) is to provide an objective assessment of the property. It wouldn't serve an inspector to make a report one-sided when their reputation hinges on full transparency and disclosure to the best of their accredited abilities.
Why is a presale inspection report beneficial to the Seller (and Buyer, also)? Here are five reasons why:
1. No Presale Inspection Ever Gives Buyers Leverage, But It Informs Them, And You.
If the Seller or their representative doesn't provide a presale inspection report for all prospective purchasers to view, it puts the onus on each buyer to enlist the services of an inspector of their choosing. Which a lot of Sellers don't have issues with, and yet this decision comes rife with risk.
If your home is older - as is much of the housing stock in the original City of Toronto - most serious Buyers will insist on the property being vetted by an inspector unless they're going to undertake substantial renovations or tear the property down. And given the major building components of any structure require on-going maintenance and repair until they become obsolete and require replacement these can add substantial costs to a home’s price tag (have you checked out my post called Understanding The Six Essential Layers Of Property?). This is particularly important in a hot market when prudent Buyers are tasked with spending the top end of their budget. They will want to know what property deficiencies they may be taking on, both in terms of the investment of their time and the financial costs. And if there is a lot to do, this could cause pause to the Buyers and become a point of negotiation. As a Seller, wouldn't you want the Buyers to have this information upfront before they submit an Offer to Purchase, rather than after when they could walk away, collapse the deal, or try to hold you ransom for a price abatement?
Let’s say that you forgo the presale inspection and you accept an Offer that includes a standard clause which states the purchase is conditional on the Buyer engaging an inspector to review your property and finding it to their satisfaction in their sole and unfettered discretion. The Buyer undertakes an inspection, and a list of deficiencies - perhaps some that are significant of which you were unaware - are uncovered. If the Buyer doesn't cancel the contract, they're either going to renegotiate the price or request you complete the deficiencies at your own expense and with the provision of receipts prior to closing.
Having a presale inspection completed in advance of bringing your property to market for sale, ultimately serves both the Seller and the Buyer by providing everyone important information. For the Seller, it gives you some context around what deficiencies are present in your home, it arms you in advance as to what issues Buyers may use as bargaining chips, and it provides you the opportunity to proactively remedy said deficiencies and attach receipts to the inspection report or, alternately, acknowledge the problems by getting quotes from reliable trades as to their costs. Either way, the Seller is able to become fully informed from the outset, in advance of negotiating with a Buyer. And the Buyer isn't making assumptions about the condition of the property but provided with a guideline on its current state at the time of sale. This is a win-win for all parties.
2. It's A Helpful Tool For Sellers
Although Sellers are often fearful there may be serious issues yet undiscovered in their dwelling, even if this is the case it is better to offer a presale inspection report by a third party assessing the condition of the property to prospective Purchasers in advance of completing a sale rather than not. Why? Because should a serious issue be discovered after closing, you are mitigating (albeit not releasing you from) your legal liability by demonstrating that in providing a presale inspection report you were selling the property in good faith and with full disclosure, rather than intentionally hiding a defect.
More often than not, the presale inspection will reveal deficiencies that can either be repaired before the property is listed for sale with copies of the receipts and any warranties attached to the presale inspection to verify the deficiencies have been completed, or you can obtain quotes from local respected trades so you're fully informed of the estimated costs to remediate.
Here is an example of how it can serve a Seller well:
During a presale inspection for a listing, the property was discovered to have water seeping through one wall in a finished basement. A reputable waterproofing company was called in where they identified all the impacted areas. The exterior perimeter of the basement was dug out and the waterproofing carried out, as well as having the drywall, Polyurethane vapour barrier, and insulation removed on the interior and photographed to demonstrate there were no serious mold issues before being restored to its previously finished state. A warranty was provided by the firm, which along with the invoice was attached to the presale inspection. Yes, this was a large unanticipated expense, but the lower level of this dwelling was finished to a high spec and added a tremendous amount of additional living space to the dwelling such that to call into question it's utility and comfort would have significantly impacted its resale value. Furthermore, had there been no presale inspection and it was instead discovered by a Buyer during their own due diligence, the deal would have either collapsed on the spot (people are terrified of the possibility of mold) or negotiations may have resulted in a significant discount to the Buyer. By how much? Whatever the high end of estimate the inspector gives, regardless of how accurate it is.
3. It Serves As A Foundation For The Listing Realtor To Have A Meaningful Dialogue With Prospective Buyers And Their Realtors
When a presale inspection report is provided by the Seller or the listing realtor, most Buyers will rely on that information rather than spend additional funds to get a second opinion. This doesn't prevent some Buyers from wanting to bring in their own inspector (who may also be their contractor), and it wouldn't be appropriate to deny them from doing so, but my having a presale inspection report in advance of listing a property for sale does provide the listing realtor some measure of control important in the selling process.
As a listing realtor, my having control over the selling process isn't about creating a disadvantage to any other party, it's about being fully informed of the property and representing it to my utmost ability. When I hire a building inspector, I'm choosing one whom I've personally vetted and have the confidence they are credible. And by providing the presale inspection report to all parties (including the multiple co-operating brokers who are representing prospective Buyers) I know it serves as the basis by which we are all relying on the same objective information. If I, as the listing realtor, don't have a presale inspection, then it is significantly more challenging for me to have an informed dialogue with any of the prospective parties regarding the condition of the property.
4. A Seller Should Know The Real Costs Of All Property Deficiencies
When deficiencies are identified by my inspector, like all inspectors, he provides an estimate for repair or replacement, but there's no guarantee this amount is accurate. This is particularly true these days when - as we navigate a global pandemic - trades are in such demand that their fees are skyrocketing. (A client recently had quotes to paint a stairwell that ranged upwards of $3900. They ultimately found someone to do it for $400).
However, when you do the pre-sale inspection in advance of listing on MLS, there is also time to bring in the appropriate trades to provide a written estimate on the work required, even if the Seller elects not to remedy the deficiency. This not only provides my Seller with an accurate cost, but it protects my Seller and me from falling prey to a Buyer or their representative who completes their own inspection and says that the roof, for example, is shot and will cost $12,000 to replace.
Let's say that happens, and the Buyer's realtor emails the page from the home inspection report that says the roof is near obsolete and will cost an estimated $12,000 to replace. What can you or your realtor do if you're apprised of this and you're caught unaware? I mean, you may have known your roof was getting on in age but you didn't realize it needed immediate attention. By relying on the Buyer and their representative to complete a building inspection, it leaves you, the Seller, vulnerable. This is especially the case if this information is shared by the co-operating realtor as the condition approaches its deadline (say it expires at 6 pm that day). What recourse will you have if there's no roofing company available to arrive, confirm and quote on the scope of work and its cost before the condition expires? Do you effectively try to renegotiate the deal by asking the Buyers to allow you to add a Seller's condition to the Agreement of Purchase & Sale so you can do your homework at the 11th hour? Would you be prepared to jeopardize the deal?
I would much rather my Seller have a presale inspection report, so that should a Buyer complete their own, we are in a better position to negotiate even when information may conflict. For example, I'd much rather say "The roofing company we consulted said that the flat roof actually has five to seven years left in its lifespan but you're right, the pitched roof needs replacing and we have a quote for $6200 and they can complete the work with a warranty next week. If this is acceptable to you, we can waive your condition on inspection by amending the contract whereby the Seller agrees to have the company complete the pitched roof replacement on or before closing at their own expense." That's a much better outcome than being blindsided about a deficiency and having no information on which to rely.
As a Seller, if you offer your house for sale without knowing its condition at the time it's being vetted by Buyers - who are likely to enlist the services of experts to advise them - it will not serve you. It would be to your disadvantage to negotiate without this knowledge when the Buyer is fully informed and armed with repair estimates that may be for substantially higher sums than you might otherwise arrange yourself in advance of coming to market.
5. It's Essential For Sellers Subscribing To The 'List Low Holdback Approach' Commonly Used In Toronto
Depending on what strategy you are using when selling your home, a presale inspection could be even more crucial.
If you, as the Seller, are listing your property for the desired amount you hope to get, it's still important to have a presale inspection, based on all the criteria I listed above. However, if you intend to use the List Low Holdback Approach with the objective of creating sufficient momentum in order to incite a bidding war, then a presale inspection report is a must (click here to read Dear Urbaneer: About Holdbacks, Bully Offers, & Bidding Wars For Sellers).
Remember that the success of subscribing to the List Low Holdback Approach is dependent on inciting competition and having as many Buyers blindly compete to push the price of your dwelling to its highest value. Note, bidding wars are very common right now, so if you're considering selling your home you do not want to finish this post without reading my piece called Why Are There Bidding Wars For Toronto Real Estate During The COVID-19 Pandemic?.
When a property comes to market for sale with the List Low Holdback Approach, and the listing realtor doesn't provide a presale inspection report, it forces every serious Buyer to spend anywhere from $350 to $1000 to bring in an inspector.
This is great for inspectors, of course, but a few years ago I once arrived at a listing with my Buyers and the inspector to be one of seven interested parties going through the house at the same time noting all the same deficiencies. Everyone, including the inspectors, felt awkward given everyone could see and hear one another, while knowing only one Buyer would secure the dwelling and the money spent on all the other inspections was effectively worthless.
Incidentally, there ended up being 13 inspections completed by Buyers over four days, and a total of 18 offers received. I think it's also valuable to mention that the property received fewer offers than it otherwise would have, had the listing realtor provided a presale inspection. A lot of Buyers will reach a point of economic fatigue where they're just not willing to shell out hundreds of dollars for multiple inspections to compete in a rotation of ongoing failed bidding wars.
While it may seem like an unnecessary expense at the outset, having a presale inspection in hand will actually support you to get top dollar. Not having one could prove detrimental, and a fatal flaw in successfully negotiating a meeting of the minds and a firm and binding sale of your property.
Considering selling? You may enjoy these additional Urbaneer blogs:
As a realtor with a comprehensive multi-disciplinary education in shelter, and 28 years of experience in the sales and marketing of Toronto real estate I can assist you in achieving Top Dollar for your property.
My team and I would love to help!
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Thanks for reading!
- Steve & The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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