Renegotiating Price After a Building Inspection

Buying a house is a costly endeavour. The average price of a home in Australia rose to $656,800 in March 2017. Although home prices vary by area, purchasing a home is a major financial obligation and a long-term investment.

You want to make sure that the home you buy is sound and without significant problems. Older homes in particular are at more risk of having faults or damaged because of age and lack of upkeep.

In addition, sellers of older homes are not legally required to disclose faults. Homebuyers have some protection when they purchase new homes because home warranty insurance usually covers defects for as many as seven years after construction.

Including a clause in the contract that the sale is subject to the results of a building and pest inspection leaves an option for negotiation.

Advantages of a Building Inspection

One of the best ways to determine whether a home has structural problems, termite damage or other faults is to have a building and termite inspection. Potential buyers can make an inspection a condition of the contract.

If no major problems are identified, then the sale can proceed as planned. However, if major problems are identified, the seller and buyer can negotiate a way to cover the costs of repairs.

Although some damage, such as worn floorboards or a roof that needs to be repaired, may be easy to see, other types of damage may not be visible. Termites are a big problem in Australia, and evidence of termites is often not apparent until extensive damage has occurred.

Termites can damage a building’s support beams, flooring, roof supports and even masonry. Other problems such as rising damp or flood damage may not be visible to an untrained observer. However, an experienced building inspector knows what to look for.

A building inspector will provide a written report within 24 hours of the inspection. The report should describe major faults, defects and damage and estimate the costs of repair.

In some instances, sellers may not want to undertake repairs during the sale of a property. Based on the findings, this provides an opportunity for buyers to renegotiate the sales price to compensate for the cost of repairs.

The cost of a building inspection may be a few hundred dollars. The cost of repairs to a damaged building can be tens—or hundreds—of thousands of dollars. It is well worth the fee of a professional inspection to make sure that your investment doesn’t quickly become a liability.

Inspections can also be undertaken by sellers as a way to demonstrate transparency and honesty in the sale. It can also speed the process of exchanging contracts.

Price Renegotiation After Inspection

Both investors and homeowners can save substantially on the purchase cost of a home by renegotiating the sales price based on faults identified and the cost of repairs. Even small problems can add up to big savings for buyers.

A seller may be motivated to go through with the sale and be willing to reduce the price to complete it.

Real estate professionals estimate that approximately 30 percent of building inspections reveal major faults. Older houses are not going to be perfect; almost any home over 50 years old will need repairs.

One home inspection company found that approximately one third of the buildings inspected are unsafe, often due to substandard electrical wiring. Inadequate wiring poses a fire hazard and can be costly to rectify.

It is important for the buyer to understand what an inspection report actually says and how that can be used for price renegotiation. For example, poor stormwater drainage can be easily rectified by adding or replacing downpipes.

Lack of maintenance in external finishes may cause a home to look deteriorated. Painting may be all that is needed to restore the vibrancy of the outside.

Conversely, severe damage from termites, flooding or vandalism could require major renovations. It is important to understand the severity of the damage when negotiating a price reduction in these circumstances. For a homeowner, a property with severe damage may not be worth the time and effort required to make repairs unless the price is significantly reduced.

Selecting a Building Inspector

Be sure to ask about the qualifications of a building inspector. The person should be licensed and insured. Ask about the inspector’s experience in the building industry and length of time in the inspection industry. Ask for references.

Be sure to call and ask former clients about the inspector’s performance. In addition, make sure you understand the rates before initiating the inspection.