Inspectors killed my deal -- 3 times, Any advice?

45 Replies

Hi friends,

I rehabbed/renovated a single family home in Baltimore County. It was supposed to be my first fix and flip after getting 4 buy and holds finished. But I'm frustrated and just put it on the market for rent. I was unprepared for the havoc inspectors can cause. Here's what happened. 

I got a contract in March and the buyer hired an inspector who noted that "what looks like, could possibly be, not sure, but it might be asbestos insulation in the crawl space." I offered to have all the suspect insulation removed and proceeded to do so but the buyer backed out anyway, spooked by the word "asbestos" which isn't even a health threat unless it's disturbed and it was in the crawl space, not a livable area of the home.

Next contract, the inspector brought the code book and proceeded to list numerous nit-picky issues that were totally different (apparently missed?) from the first inspector's list. Said there might be mold in the crawl space. Again, I proceeded to move forward with mold remediation only to have that buyer back out because "mold is scary."

Finally, another offer and another nit-picky list of non consequential stuff to fix (including a small tear in a window screen and a front step that had settled and was now 1/4 inch lower and out of compliance)! This inspector noted that the chimney might be a problem down the road. Boom, buyer backed out even though their lender inspector found no issues.

So how do you all deal with inspectors????

Looking forward to insights. I plan on renting it for at least a year and then perhaps trying to sell. I can't afford to sit on it any longer not knowing what idiot inspector might walk through the door next and ding me for God knows what! Perhaps if it's not "newly rehabbed", the buyer won't be expecting me to build a new house! 

inspections can be uber frustrating in older homes..

I know when we build new construction buyers have inspections and there is always a laundry list.

its their job.

you can refuse and move on.. its not common by the time the folks go into contract and spend money on inpsections and apprsials and such they usually will move forward if you address major issues.

you can always put in your counter offer you will only address major issues any thing that is only for the benefit of long term ware and tear your not dealing with.. kind of set expectations up front.

First I will apologize to all the home inspectors that read this.....They are PROFESSIONAL deal killers. They have killed more deals for me than I can count. All for absolute BS. Your post is a great example. For the sake of this argument I will assume that the insulation they are referring to as being asbestos was probably pipe wrap for a steam radiation heat system. Experts in the field actually don't recommend removing that. It becomes friable and therefore posing a bigger problem. They recommend wrapping (encapsulating) the insulation. Most home inspectors don't bother to explain what I just did, that it is NOT a heath problem. It's gonna be ok and you will not die. They get their fee and feel they have to justify that fee by scaring the living sh** out of a prospective buyer. Maybe they get some kind of kick out of it, I don't know. 

Most buyer's are not competent enough to understand a true hazard when they see one. That's why they hire a HI to begin with. They are trusting what they say as gospel though because they are the "expert". 

AS a real estate investor and seller, I ALWAYS ask to be notified when the inspection will be and I show up myself. It's quite funny when you call them out on their BS scare tactics in front of their customers. 

That being said, there are some issues that a HI does catch that can and will pose a problem for the buyer and for that, it works. They did their job and deserve that fee. BUT for every legit problem they "uncover" they report 10 "problems" that are total BS!!! Buyers trust that report and run for the hills. Sorry to rant. They just have killed too many deals (for BS reasons) to not be bitter.

@Michael Knaus hit the nail on the head. Purchases have to use critical thinking and inspectors have to point every single thing out to avoid lawsuits.

Thanks for the responses. This is my first experience -- either they are professional deal killers in general, or I ended up dealing with 3 in a row who happened to be deal killers. 

I called the first inspector and told him he killed the deal and he seemed surprised that the buyer backed out!  Really?!!!

@Ruth Lyons Prior to fixing anything, did the buyers come back with their requests? If so, did you agree and fix them? I have never had an inspection lead to a buyer backing out of the deal. I have had long lists of requests, but usually a quick discussion and you can work through negotiating them down. It's very odd to have 3 different times where they refused to allow you to fix the issues and simply moved on (after spending money on inspections). The insulation is easy to have a company remove, the mold is easy to test and determine how to treat, and the chimney work as well could be negotiated.

I have actually only ever said no to one or two inspection items. I believe I had a list that was 12 items long. I looked through, it was maybe $2000 to fix it all. I had a house with a garage full of termite damage that was found. They required me to have the house and detached garage treated and the termite damage fixed (1/2 of the sill plates, 1/4 of the studs and 1/8 of the sheathing needed replacement). None of the buyers ever backed out...

If you have a realtor involved I would be asking them what the issues are and why everyone is backing out.

Brian, I did get a list through my realtor and agreed in all cases to fix everything with the exception of the last issue (chimney). My contractor recommended I seal it with a special mortar paint which I did. I didn't have it done by a "licensed contractor" as I did it myself. That seemed to be the issue.

also might be the original posters demeanor towards the buyer's. the buyers might have walked off more because of demeanor than issue? Us commenters will never know since we can't talk to the buyer's or the buyer's agents... it's a seller's market practically everywhere since 3 buyers lined up paid for inspector have to believe there was demand.. I suspect the problem is the seller and not the house? others?

@Ruth Lyons if you received a list of items to be completed, and signed the list, how did they then back out? Did they back out after the repairs were done or before? If after the repairs were done, I would be asking my attorney if I can recover some of those costs. Maybe because I never had a situation where a buyer walked after inspection, I am just not sure how easy it is to do. 

A few ideas:

* If you KNOW every home inspector on earth will find the issue you could state it up front in the agent MLS notes with the proposed solution / cost to fix. It's a typical thing in SF where everyone is in litigation / properties are selling as if everyday is Black Friday. (E.g.: I can't think of a 10+ yr old $1MM condo I've shown that hasn't gone through a lawsuit... Yet, every time a home buyer hears "litigation" they panic. Sometimes it makes sense, other times it's the usual 10 year builder v homeowner battle...)

Potential issues: Could be the kiss of death, but if it's a known, for-sure problem, not saying anything is... omission and can get you in trouble. 

* You could get your own inspector to give his/her blessing and see if someone offers without their own inspection. (Unlikely if your market is cold, but maybe it isn't...)

* Say sorry, lose the deal / get

* Fix it, write it off, and stop paying the holding costs

* Negotiate to fix their most critical issues

~~~

Random Thoughts 

From a buyer's perspective-- as people above mentioned, newer buyers tend to want a flip property that's PERFECT and have a hard time wrapping their head around blowing through savings and then ALSO having to fix it further... 

Idea 6: Wait until your market is so insanely hot and has low inventory like San Francisco, oh and a "Not In My Backyard" mentality... Where people are paying 700k and likely going to bid over hot, sultry properties like this. 

"Still loanable" !!! haha

Sorry though, about the unortunate line items you seem to be encountering. :/

I feel like there is something missing here.

It is kind of odd for them to ask to fix things, then backing  out after you fix everything.

Doesn't make sense?

Inspectors will find stuff  that is their job. Then you negotiate.

What is the point of asking to fix things and then backing out. 

One understandable  but not all three

???

@Ruth Lyons I agree with @Brian Pulaski . This could be a contract issue. First what kind of contingency was in the original sale agreement? If it was too generous for the buyer and let them out too easily, why did you agree to it?

If the contingency was legally fulfilled by you, then there is a breach of contract. Why would you let the buyer out? Did your agent suggest letting them out of the contract because the agent didn't want trouble? Personally if someone breaches a contract with me I will often go after them. That is the purpose of contracts, to force people to honor their agreements. Did you keep the buyers earnest money deposit?  If you did, then you were compensated. 

My points above are to show, while you have no control over the buyer, you do have total control over what you accept in the original contract. You have total control over what you accept as an earnest money deposit. 

Also consider what @Curt Smith said. Was there something in how you were perceived by the buyer that spooked them or turned them off?  Extremes in either direction can harm you. If you are too soft and accepting of everything, a buyer can think "what is wrong?".  If you are too harsh or tough in negotiations that can turn off a buyer too.  Especially by the third contract it would be natural for you to react in either of the above ways. 

I would deal with, or avoid a similar situation by:

  • Having a strong contract at the outset. 
  • Qualifying the buyer before accepting a contract.
  • Do an inspection prior to listing and have the report available to buyers. Address key issues in the report, again prior to listing.
  • Offer a home warranty
  • Show copies of permits and permit inspections

Keep in mind some of what you can demand in the contract will have to do with the market. In a buyers market you need to be more forgiving. In a sellers market you can be tougher. If you are currently in a sellers market, like many areas of the country, then clear something is wrong with your deal.

Could be @Ryan Murdock . Either way, the Home Inspectors will make sure the buyer knows it will kill them if they buy the house! LOL

I overheard an over zealous home inspector one time talking to my buyer. I was there in grimy work clothes finishing up some minor odds and ends and they assumed I was just "a worker". He was going on about the anti-tip device that was NOT present on the new range. He actually said the following....(i am paraphrasing but close enough).

" What we have here is a serious problem. Without this anti-tip device installed, let's assume your little toddler decides to open the oven door and stand on it to see what you have cooking on the stove top. Once they step on the oven door, the BOILING hot pot will spill all over your poor child's head giving them 3rd degree burns that will require skin grafts if it doesn't kill them".  

The buyer was MORTIFIED. She said they actually had a toddler and they envisioned this scenario unfolding right before them and I could tell she was upset by this.

This is where I stepped in. I introduced myself as the owner. I opened the stove where the anti-tip bracket was and told them I was there to install it and will have it done in 5 minutes. it's 2 screws....It was on my list of items to finish anyway. She was satisfied and seemed happy. Thank God I was there to talk her down.

The point here is, the HI was right. But why paint such a dire image in the buyer's head? Simply point out the issue and insist it is addressed before the closing. This is not an isolated event. I have seen this type of thing unfold time after time. I wish they could find a balance between finding a real problem and scaring the crap out of a buyer. SMH.

@Michael Knaus funny my home inspector (on my personal house) missed the missing anti tip bracket. I found it the first day we started putting things in the cabinet. Also found out they never actually mounted the dishwasher to the counter or cabinets... it was/is just sitting there.

I had a home inspector on a 100 degree day make the realtor call me to come back to the house. They put the thermostat to its highest and the boiler wouldn't fire and "heat the baseboards". The boiler had an OA alert.

I literally had to explain that the boiler was not going to fire off on a100 degree day and "OA" refers to outside air. Needless to say none of this happened over the phone, I had to physically be there to see the code and explain this to them. Then had to call my plumber and have him confirm this over the phone.

Thanks to all of you for taking the time to share your expertise. I won’t mention his name but my agent is less than adequate. I have fired him but I should’ve done it sooner. He seemed knowledgeable at first but I could’ve negotiated better than him. He didn’t pass on anything I asked him to convey to the buyer.  Last buyer, I gave a huge seller subsidy to and asked my agent to tell them that I’m doing that because I’m not expecting a laundry list of inspectors **** to do. But what did I get a laundry list of inspectors **** to do?!  I ended up calling the buyers agent myself and asking him if my agent conveyed that message to his buyer and he said no. And He was constantly unreachable and quasi deceitful. 

@Ruth Lyons that's a shame, however I'm not sure your agent would have called and said, we don't want a list of items from your inspection. Unless you intended to sell the house as is (which could very well be the case). With that said, why did 3 buyers ask for items to be fixed, you fixed them and somehow al 3 backed out of the deal?

That's a good question Brian. One I believe only my agent -- who is supposed to be representing my interest -- could answer. 

I did keep the EMD from the 2nd buyer -- I had to write a letter and drop it off at the title company because my agent didn't do it and I got a certified letter that they were going to release it back to the buyer if they didn't get written notice from me.

And I'm certainly keeping it from this last buyer. I let it go the first time to be nice. 

You are more patient than me. If I agreed to (I always have to sign off on the agreed to work from the inspection) complete a bunch of repairs, spent the money and time fixing them, and find out the buyer backed out anyway (simply backed out, with no other reasons) I would be with my attorney on what money above the EMD I could possibly be getting back. Not to mention after 2 times, I would require a LARGE EMD, something they would really miss if I kept it.

@Ruth Lyons , I have you say you had your share of misfortunes with the home inspectors. As a real estate agent, I will say that there a big miscommunication between everyone involved.

One of my first experiences in the business with a home inspector was so bad, I almost wanted to get out of business. The home inspector was rude to me the buyer's agent and even accused me to work for the seller, as I was continuously asking him questions on how much that issue that he was making a big deal will cost to be fixed ( $15), how long it will take for the house to fell down because there is a bit of rust on the railing of the balcony of a 5-year-old home ( answer 60+ years if the railing is not cleaned and repainted  which was $100 worth repair).

You get the message. 

What I've learned in the end is that these home inspectors are not skilled in communication and they treat a small issue equally with a crack in the foundation or faulty electric panel. 

What I will advice is to have your broker attend the inspections and making sure the buyers understand that every house has a laundry of issues and the home inspectors are just looking for what's unsafe and not for every little thing to be fixed or create issues.

Good luck to you and make sure you find a broker that is empathetic and a great communicator. People think that brokers are hired to FIND homes when they are actually hired to CLOSE the homes!

I am a licensed home inspector, although I do not do many inspections anymore. I can shed some light on the home inspection process. The majority of work for home inspectors comes from Realtor referrals. Good inspectors do not want to kill a deal. If they continually kill deals they will get a reputation and the Realtor referrals will dry up and they will have little work. Good inspectors have a way of informing the client without scaring them. First time home buyers are very easily scared, people that have experience with owning a house are more accepting of issues and realize that things can be fixed.

Most items do not kill a sale unless there is something really seriously wrong with the house. A good Realtor can counsel their client about the issues uncovered during an inspection. Keep in mind the Realtor does not get paid until the deal closes. So if the deal falls apart they are back to square one showing the client new houses. Most home inspections uncover the same things over and over, and as you gain experience you will get what the home inspectors are looking for and find. The main items depend on the age of the house but typically include; Electrical- non-functional GFCI, double tapped breakers, missing knockouts on the main panel, missing electrical boxes and or covers, open-air splices. Plumbing- corroded cast iron drain lines, corroded copper piping that leaks, sink trap leaks, sink popup ups that are non-functional. Kitchen- range anti-tip missing, dishwasher high loop. Boiler/ water heater- leaking relief valve, relief valve pipe missing or too short. Outside; grade problems, no downspout extensions, gutters that need to be cleaned. 

No two inspector will find exactly the same things, but the majority will overlap. Home inspectors are paid to inspect the house and report the problems they find. The reason most home inspector report all the little nit-picky things are due to liability. The reports are 40 to 80 pages, half disclaimers. When something breaks after the inspection the cash-strapped buyer sometimes looks for someone to pay. If it's something that's a few thousand dollars they usually look to the inspector for reimbursement. It is a highly litigious business.  

I would recommend that if you are new to selling houses that you either seek out someone who has the experience to look at your house prior to listing it or hire an inspector. If you go the inspector route tell the inspector your an investor and would like them to walk the house with you and tell you what they see and you do not want a report. I call it a walk and talk. You should take notes. This should be considerably less expensive. Not all inspector will do this due to their insurance company requirements.

Keep in mind that anything you can fix prior to listing the house will be easier and cheaper for you fix if you find it before a buyer is involved. Once a buyer is involved they typically want the work completed by a licensed contractor.

If your house is marketed as "totally renovated" or something similar the buyer is going to expect a perfect house with no problems. If problems are found it creates dought that its totally renovated and they start to wonder if you cut corners. Watch how the Realtor markets the property and what they say. I think it's better to say new kitchen or whatever was done instead.

#1 the job of the home inspector is to work FOR the buyer or home owner who hires them. 

Did you hire an inspector when you purchased this property? If so I would be upset you weren't aware of these issues before hand and have a valid argument. If not... I don't really think you have a leg to stand on here.

An inspector's job is to look over the entire home and make note of things that may be a hazard, structurally unsound or become an issue.

Asbestos? Mold? ... these are things that should NOT be taken lightly!

EVERY time I purchase a house it's contingent on passing a home inspection to MY approval. Meaning if there's something in the home inspection I don't like I can always back out of the deal!

The inspector did their job and acted in the best interests of those hiring them. The buyers made a decision accordingly.

A home inspection cost between 200 and 500 minimum... you just had two at the cost of the buyers. Look at the positive you now are aware of some issues that need your attention.

Houses have problems. It's nothing personal. If  you feel they're serious enough give them your attention. If you do not then don't. 

I personally would NEVER be able to sell a house knowing it has asbestos or mold. Regardless of where it's located.

Get it re-mediated and you get the paperwork that you have had it done... 

It sucks I know you probably just want to get this deal done and move on. I would recommend that you add some really good people to your team. From the sounds of it, you need a good home inspector yourself, furthermore it sounds like you need a good realtor. If this is going to be your business treat it as such and screen your "personel" carefully so they're working FOR you. 

Wishing you more prosperity than headaches... 

I have had the same problem on one of my flips. Purchased for $40k, put $30k into it and listed for $90k. Everything was nit-picked. I am a contractor so I did all the work myself. We rebuilt from the studs out. We had issues where they backed out because the water was brown (old supply lines) but it was only brown because the property was vacant and it isn't a real issue, mostly a street side problem. We replaced every window in the house, apart from one. They complained about the paint on the one window. Had complains about the weather seal on the bottom of a porch door. 

The biggest issue we had by far was the back neighbor. She was harassing all potential buyers and turned everyone away, the houses were VERY close together. We ended up dropping the price to $69k and just took an offer of $65k. Turns out the $65k offer was the lady in the back of the house. Ugh. I'm just happy to be out of this one.

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