Dan's Papers - April 3, 2009

These days, real estate transactions are more fragile than ever. News reports make formerly confident buyers gun shy, leaving them with shaken confidence. Other buyers may exit deals because of a sudden layoff or another blow to household income.

So it behooves buyers and sellers to do whatever due diligence they can on the front end to keep deals from sliding, if not catapulting, off the tables. In the next four weeks, this column will examine potential deal slayers, and how to avoid them - if possible.

Of the many potential deal slayers in a real estate transaction these days, one with a good strong history on the East End is the home inspection. Somewhere after the O&A (offer and acceptance) and before the contract, the buyer (at the behest of the bank/mortgage company) must order a home inspection. (Cash buyers are not required to get an inspection, though they should.) The details of the report may influence the price negotiated, or even the forward progress on the deal. Based on an inspector's report, a dream home can quickly become a nightmare for a potential buyer, and an albatross for the seller.

Without a thorough home inspection performed by a qualified professional, no one -neither seller nor buyer - can be aware of the condition of a home. The goal of the inspection is to give buyer and seller the information needed to help button up the deal, or end it for good reason. Inspection reports that kill deals usually involve serious, legitimate issues like leaking roofs, rotted wood or termites. So a home inspector's report should point out problems that require immediate, costly and/or time consuming repairs. In this case the report is not a deal slayer but a grief saver.

If you're a buyer hiring a home inspector, of course it's important to find one who is formally trained and certified by an organization such as the National Institute of Building Inspectors (NIBI®). Real estate agents usually know the competent home inspectors in the area. If you ask an agent for referrals, be sure to get names of several inspectors.

A very good bit of advice is: Hire local. Try to find (by referral, reputation) a local professional who knows his job, the town, the local codes and the homes. One homeowner told of a young up-island inspector completely unfamiliar with the East End. After a week of heavy snow, warming temperatures and melting snow, he stood in the backyard and told the buyers, "This is marshland" - in a neighborhood that is notoriously dry and sandy.

Needless to say, it's important to get to know the reputation of your engineer, making sure he's not overemphasizing minor issues and recommending unneeded work - that he will then refer to his contractor buddies.

Equally important is that the engineer is experienced enough to give an accurate assessment of the problems. Beware of engineers who, in their need to justify their fee, become over zealous if not alarmist. Another homeowner spoke of an engineer who told potential buyers that a 5' by 10' balcony was dangerous. Upon questioning, he said that in no way could the deck handle 40 people. Cooler heads prevailed, as both buyer and seller rolled their eyes at the notion that any sane person would crowd 40 people on a small balcony off a master bedroom in a private home. And in this instance, the inspector showed a lack rather than a bevy of knowledge.

Theresa Quigley, a real estate attorney with Farrell Fritz in Bridgehampton, sees another disturbing trend among some inspectors.

"I've been noticing some home inspectors have been overstepping their bounds," she said. "The job of the home inspector is to point out the potential problems. But some are going above and beyond.

"For example," said Quigley, "say there's an inspection in the winter, where the condition and functionality of the swimming pool or sprinkler system can't be verified. I've seen inspectors tell buyers to insist that their lawyers hold money in escrow until the pool or sprinkler is found to be in working condition. The inspector is setting up false expectations for the buyer - no seller would ever agree to something like that. It is then frustrating for the buyer and the attorney, all because the inspector is overstepping the requirements of his job: to report on what he can see."

Quigley agreed that local inspectors, if they're good, have the advantage of being familiar with local codes and issues. She suggested looking for an inspector with a proven history of business in the community.

For sellers, there are now home inspectors that will do "pre-approvals" of homes on the market. But this could be a sticky wicket for a few reasons. First, the report might include subjective recommendations that the seller would rather not share. Second, a potential buyer might be distrustful of a report handed to him by the seller. Where a pre-inspection may be helpful is as a tool for the seller to learn about major problems that might affect his pricing. A competent inspector will point out these issues, giving the seller a chance for remediation before he is blindsided by the buyer's inspector.