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Choose Home Inspection Clauses Carefully

Posted August 1st, 2012 under pitfalls, smart buying, smart selling.

A typical Agreement of Purchase and Sale includes a home inspection clause. There are a few variations, and each one has its own advantages and disadvantages.

The most common clause requires a “report satisfactory to the buyer at the buyer's sole and absolute discretion” for the deal to go through.

This clause gives the buyer the right to cancel the deal for even the smallest defect. It could be as little as a scratch on the wall or a door that sticks! A perfect inspection report is basically unheard of, so this amounts to a free 'out' for the buyer if they want.

Generally, this clause favours the buyer, but there are times where it can be helpful to the seller. If the buyer decides they are determined to get out of a deal, this allows them to do so early on, rather than resorting to messier methods later in the selling process. In a way it acts as insurance against a possibly much bigger mess later!

Another condition states that, if the report reveals deficiencies the seller is “willing and able to remedy”, and the seller makes those remedies, the buyer must accept them and the deal goes through.

This clause may seem favourable for the seller, but it can easily lead to disputes over what constitutes an appropriate remedy. (For example, if a leaking pipe is replaced by a new pipe of lower quality and lifespan, is that appropriate?)

Many times, repairs can be negotiated as amendments anyway, so specifying this ahead of time may be an unnecessary complication.

There is a third clause which is similar to the previous, except that the inspector provides a written estimate of repair costs. So long as the repair estimate is no greater than an agreed dollar value, the deal goes ahead.

Just like the previous clause, this one can lead to disputes if either party feels the estimate is inaccurate.

Finally, the least-common condition of inspection allows the buyer to name a specific person to inspect the home, and a report satisfactory to the buyer must be obtained (just like the first clause).

The buyer can choose anybody, whether or not they are a home inspector, and whether or not they are knowledgeable.

The two big reasons a buyer might ask for this clause are money and trust. This clause allows them to name somebody they trust, or somebody who can provide them a discount, often a friend or family member.

So long as the person named is qualified, this clause works out the same as the first one we discussed. However, a difficulty can arise if an unqualified person is chosen, and nonexistent 'problems' are discovered that derail the deal.

In summary, each clause has its advantages and disadvantages. I generally do not recommend the second or third clause because of the mess that can arise, but each situation is unique. The important thing is to pick the clause that fits your situation and needs.

Want to know more about home inspection clauses? Just ask me, I'll be happy to help.

--Peter

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