home inspections

Do Home Inspections Really Affect Property Value?

home inspections

For sellers trying to sell their homes and buyers looking to buy a house, reaching the right price for both parties is like a tug of war. Sellers will oversell their home and convince buyers that the home is in the best shape possible and worth a lot more.

Buyers, on the other hand, will counter by naming other homes that were in a much better condition but were still sold for around the same price. The two parties will go back and forth with offers and counteroffers until they eventually settle on a mutually agreeable price.

As soon as the negotiation reaches this point, something interesting happens. The buyer knows that no matter what happens after they sign a purchase agreement with the seller, they cannot pay more than the agreed amount for the home. They know they may even end up paying less.

On the contrary, even though the buyer has reached a price with the seller, he/she has no guarantee of receiving that exact amount at the close of the transaction. There is still a chance that negotiations may reopen, and they will have to accept a lower offer from the buyer.

How is this possible?

It is possible because of the home inspection. The home inspection has become an almost mandatory part of the home buying process. As Innovative Property Solutions points out, buyers will often include a proviso in the purchase agreement that lets them terminate the purchase agreement based on the inspection report.

What is the home inspection?

The home inspection is a grueling assessment of all parts of a home that is on sale. It is usually ordered by a buyer to uncover any underlying problems with the house that the seller may have failed to disclose. Its central purpose is to protect the buyer’s interest.

The inspection subjects all areas of the home to scrutiny. It examines its structures (foundations, walls, basement, and roofing), systems (electrical, plumbing, and HVAC), and all appliances inside the home. There are three possible ways that a buyer may respond to the inspection report.

  • From the inspection report, they can decide that they are happy with the home. In that case, the buyer has no reason to renegotiate and would have to buy the house at the previously agreed price. That is the most favorable outcome for the seller.
  • The buyer may also decide that there are too many problems with the home. If the buyer thinks that the issues are too severe or too costly to fix, they may terminate the agreement without losing their earnest money
  • The final option is a middle path where the buyer may decide that although the home has some serious issues, they can solve the problems. In that case, they may go back to the seller and ask for a lower sales price to cover the cost of fixing the home.

If the buyer takes this last option, then the home inspection will lower the property’s value. But this outcome is only possible when the seller has not taken adequate precautions to make sure the buyer’s home inspection does not alter the sales price of their home.

How can sellers stop the home inspection affecting the value of their home?

The two most essential qualities sellers can bring to the table when negotiating with buyers are trust and complete knowledge of their home. The more a seller knows about their home’s condition, the more confidence they inspire in buyers and the more negotiating power they give themselves.

And the only way a seller can find out the actual state of their home is by ordering a pre-listing home inspection. A pre-listing home inspection is the same as the buyer’s home inspection. The only difference is that the seller orders for it before listing the property for sale. It comes even before the seller sets their home’s list price.

What does the pre-listing inspection do for a seller?

  • It gives them complete knowledge of their home and prevents surprises by the seller’s home inspection.
  • It helps sellers choose the repairs or renovations that will result in the most improvement to the home’s value.
  • Since the seller must disclose the inspection report to the buyer, it creates trust and facilitates smoother negotiations.
  • And it reduces the buyer’s home inspection to the status of a mere formality since the buyer already knows the home’s condition from the seller’s inspection report.

The overall effect of doing a pre-listing inspection is that the seller can enter sales negotiations with more confidence. They are confident about the condition of their home. And they have facts to back up their asking price for the property. They will not be anxious during the home inspection phase of the sales process.

About the author

Aaron Cooper