The Inspection Can Change Everything After You Accept an Offer
As interest rates continue to rise, the real estate market is shifting. We are seeing more negotiations after the buyer completes the physical inspection—and those negotiations can significantly impact the seller. One of my favorite escrow officers estimates that 40% to 45% of her escrows involve either a price reduction or a buyer credit after the inspection. Even more concerning, she estimates that approximately 30% of her escrows are canceled.
We recently closed escrow on a Los Angeles trust sale, and I was not happy with how the transaction played out. Because this was a trust sale, we had an appraisal of $950,000. However, the appraisal was more than a year old. In addition, the appraiser did not make a location adjustment, even though the single-family home was located directly across the street from mobile homes.
Considering the location and the current market, we decided to list the property at $899,000. We had showings, but no offers. The trustee ultimately agreed to reduce the price to $849,000.
We then received two offers: one at $849,000 and another at $820,000 with a $10,000 credit to the buyer. We countered both buyers and asked them to come back with their highest and best offers. Neither buyer increased their offer, so we opened escrow with the $849,000 offer.
This Is Why I Prefer Pre-Listing Inspections
I strongly prefer having a pre-listing inspection on most of my listings. Why? Because it allows the seller—not the buyer—to control the narrative. Before putting the property on the market, we can identify potential problems, decide which repairs are worthwhile, and get our own estimates. We can then decide whether to make repairs, disclose the condition and sell as-is, or adjust the price accordingly.
It also prevents the buyer from being the first person to discover an issue after we are already in escrow. Unfortunately, I was outvoted. The buyer conducted a standard physical inspection, along with foundation, chimney, and sewer inspections. In my opinion, the buyer’s repair estimates were significantly higher than reasonable costs.
And this is where the situation becomes difficult for a seller. Once the buyer has completed inspections and obtained repair estimates, they have much more leverage. If the buyer had canceled escrow over the inspection findings, we would have faced another problem. The inspection information and the repair estimates (which I believe were inflated) could potentially become part of the disclosure picture for future buyers.
The seller could then find herself negotiating over the same issues again—with the added complication that a future buyer knows the previous buyer walked away.
The Lesson for Sellers
This experience reinforced something I have believed for years: The best time to discover problems with your home is before you have a buyer—not after you are in escrow.
A pre-listing inspection doesn’t mean a seller has to fix everything. In fact, I often recommend that sellers do not make every repair identified in an inspection report. Instead, the inspection gives us information and choices.
We can prioritize the important items, get reasonable estimates, make strategic repairs, disclose the necessary issues, and price the property accordingly. Most importantly, we can enter negotiations prepared and with our eyes open.
In today’s market, where buyers have more opportunities and inspections are increasingly becoming a point of negotiation, preparation before the listing can save sellers significant money, stress and negotiating leverage later.
