New Home Inspection rules — What every Seller needs to Know

New Home Inspection rules — What every Seller needs to Know

The Old Way:

  1. You sell your home to a qualified buyer
  2. They do a “home inspection” as part of the contract;
  3. Some problems are found but no big deal — the buyer writes you a “notice” and the two of you agree to a resolution using the same form (the notice). You’re all done, nobody else needs to know about it, and the papers you signed didn’t become “part of the contract.”

The New Way:

  1. You sell your home to a qualified buyer;
  2. They do a “home inspection” as part of the contract;
  3. Some problems are found. (Here’s where everything changes . . . ); The “notice” you get from the buyer immediately “relates” to the contract and you get a little warning:
    “NOTE: Resolution of inspection items agreed to by the parties may alter the terms of the Contract and require disclosure by Buyer to Buyer’s lender. Buyer is encouraged to consult Buyer’s lender prior to entering into a final resolution on inspection matters as the resolution may (1) have a detrimental impact on the Buyer’s ability to get the loan; (2) cause delays in the lender’s processing and funding of the loan by Closing; and (3) require further inspections and repairs. Communication with the lender should be in writing.”

    They (CREC – Colorado Real Estate Commission) are warning you the that 2 things have changed and it could mess up your sale:
  4. The inspection “resolution” is now done on a separate form, and it’s definitely part of the contract:
  5. inspections Winston Downs

    That’s the new title of the new resolution form, making it crystal clear that it’s an amendment (part of) the original contract. And that means . . .

  6. You have to show it to the buyers lender.

Why are they doing this?

They (CREC) are trying to protect the public and make the valuation process more honest and transparent.  CREC regulates not only real estate brokers, but also mortgage licensees. The CREC gets complaints from the public, and based on the areas of most concern, they create new rules.  Here’s part of the CREC ‘position’ on this issue:

The Commission has received inquiries and complaints claiming that real estate brokers (“Brokers”) misrepresent property conditions and negotiate repairs in a manner that conceals issues from the buyer’s lender, particularly when the property’s condition would affect a lending decision. The Commission issues this position statement to clarify how Brokers can advise buyers regarding inspection objection issues and maintain compliance with Commission rules and regulations. Brokers must understand that in working with their clients to resolve inspection issues, Colorado law imposes upon Brokers the duty to avoid misrepresentations [C.R.S.§ 12-61-113(1)(a)] and dual contracts [C.R.S. § 18-5-208].

Remember, too, that if your broker is an “agent” of the Seller in the transaction, you (the Seller) have liability for misrepresentations as well.  Another good reason to use an experienced broker:  managing your risk in the transaction.

So they’re tightening up the appraisal/loan origination by making the lenders be more aware of the true condition of the property. Now the lender has two ways to know what kind of shape the home is in:  the appraisal and the inspection resolution.  Bottom line:  buyers and sellers and brokers have to be up-front about repairs to the property, so the financial institutions will have a truer picture of the home’s condition.

The Right Ways to Resolve the Inspection

Maybe the buyer won’t find anything wrong on their home inspection . . . yeah, right.  Here are all the possible ways to resolve unsatisfactory conditions:

  1. Seller repairs prior to closing
  2. Seller can give a credit or concession to the buyer (e.g., pay some of their closing costs)
  3. Buyer can make repairs (after closing, of course)
  4. Buyer and Seller can modify the sales price
  5. Seller can escrow funds or pay a contractor (if permitted by lender)

Avoiding Complications

If your buyer is getting a loan to buy the house, then any of these solutions could cause problems with the mortgage financing.  Before you negotiate one of these alternatives, the buyer should be advised to talk to their lender and find out if the resolutions mightk:

  • have a negative impact on the Buyer’s ability to get a loan;
  • cause delays in the loan processing/funding/closing
  • require further inspections and repairs

Then, once the buyer and seller have reached a resolution, the Brokers can memorialize the terms on the Commission-approved Inspection Resolution form or the Agreement to Amend/Extend the Contract. And, of course, provide a copy to the lender.

More info . . .

Here’s a scholarly and more technical explanation of these issues, from Bruce Jordan (lawyer, mortgage broker, member of CREC forms committee).



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