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August 9, 2022

Understand Due Diligence and Home Inspections

By

Dee Dawkins

Understand Due Diligence and Home Inspections

During a North Carolina residential real estate purchase transaction, the home inspection is one of the most crucial junctures.

North Carolina is a “Buyer Beware” state.

Buyer Beware in Latin is “Caveat Emptor” meaning the buyer is solely responsible for inspecting quality and suitability of the home before a purchase is completed.

This is why the due diligence money and the due diligence period are so important.

What is Due Diligence to a Buyer in North Carolina- Part 1

Each purchase transaction includes multiple junctures in which negotiations are performed.

When buying a house in North Carolina, the common initial negotiations include: purchase price, closing costs, closing date, due diligence fee and if there's any personal property to convey.

The next important negotiation juncture is within the due diligence period.

What is Due Diligence to a Buyer in North Carolina- Part 2

In North Carolina, the due diligence fee is non refundable and the due diligence period is the time allotted for you as the buyer to inspect the quality and suitability of the home.

This includes inspections and appraisals if necessary.

Buyer and seller must come to an agreement within that period in order to move forward with closing.

Also, within the due diligence period, you as the buyer have the option to terminate the contract for any reason and receive a full refund of earnest.

Inspections are important because they help to identify minor or substantial defects with the property, including anything that could deem the property unsafe or compromising the home’s long-term value.


How Long Does a Home Inspection Take?

The home inspection process and time frame depends on the size of the house.


A typical 3,000 square foot home could be inspected within 2-4 hours.

During the inspection, the inspector must have complete access to the home, including, crawlspaces, basements and attics.

If the inspector can’t access any hard to reach areas, locked rooms or areas with debris that obstruct the items to be inspected, the inspection report won’t be complete.

Typically, a full report, including photographic evidence and summaries, that outlines the home's defects would be generated the following business day. 


How Much Does it Cost For a Home Inspection?

A typical home with 3,000 square footage, an home inspection can range from $500-$600.

There are additional factors that determines the cost a of home inspection.

The home inspector serves as a "whistle blower" for all defects, including items that require a specialist to further investigate the discovery process.

A home inspection could also include a radon test, well and septic (if applicable), termite report, HVAC inspection, structural inspection and a roof inspection.


Who Pays for a Home Inspection?

“Caveat Emptor”. The buyer is responsible for the expenses of investigating the condition of the home.

The home inspection expense however, could be negotiated and paid for by the seller as part of closing costs. This type of negotiation is rare in a seller’s market

At any rate, a lengthy  home inspection report  doesn't necessarily mean that you should exercise your right to walk away during the due diligence period.

You, as the buyer, could request for some repairs to be made and/or concessions, “cash in lieu of repairs”, if the seller either declines to make repairs or doesn’t have the means to make repairs.

If you and your agent successfully negotiates the cash, the concessions could be applied for a contractor to make repairs, towards closing expenses and/or towards the purchase price. 


What Fixes are Mandatory After a Home Inspection?

Sellers are not obligated to make any repairs. Because North Carolina is a “Buyer Beware” state, all homes are sold “As-Is”. 

Dealing with extensive repairs during a purchase transaction could be a major headache for a buyer.

When I represent sellers as a listing agent, I always recommend a pre-market inspection, so that the major defects are identified and accounted for, before listing.

It would be best if the seller was aware of the major defects which currently existed, so that the defects could be properly disclosed.

It would be ideal to be properly informed and know what to expect before obtaining an inspection or presenting an offer.

Your lender may have restrictions regarding certain defects of a home before approving the loan.

You should consult with your loan officer before making an offer on a home, so you and your buyer's agent would know to keep an eye out for those defects.

The two most common defects that sellers rarely push back on are: high radon levels and a missing or improper CSST Bond.


What Main Issues Do Home Inspectors Look For?

Home inspectors search top to bottom to investigate possible defects of:


HVAC System

HVAC stands for Heating, Ventilation and Air Conditioning. HVAC units are common for residential and commercial buildings with central air.

HVAC systems are essential for comfort because they are designed to counteract the exterior weather condition, and the average unit has a lifespan of about 12-15 years.

Consistent routine maintenance checks with a qualified HVAC technician extends the life of the unit. Think of it as having your car’s oil changed.

When older HVAC units are identified in the home inspection report and buyers are rarely willing to be on the hook for replacement, a home warranty is a common remedy for both parties. 


Electrical System

The electrical wiring and outlets should get periodic inspections to ensure home safety.

Any improper wiring could lead to a short and create a fire inside of the home.

Older homes typically don’t have GFCI’s (Ground-Fault Circuit Interrupter) and are commonly cited in a home inspection.

A GFI and a GFCI are the same thing. GFCI’s are necessary in every area where water is present (i.e. Kitchen, Bathroom, Laundry Room and Exterior Outlets).

The circuit trips when water is introduced, saving a power outage or fire. 

 

Roofing System

The roofing system includes: roof covering, sheathing, roof structure, flashing and drainage.

A typical asphalt shingle roof in North Carolina could last from 20-25 years. Metal roofs last about 3 times as long.

The common individual asphalt roof shingle can easily be damaged from normal weather conditions and allow water to seep in.

Inspectors are required to investigate every shingle in the room to identify possible leaks.

An occasional harsh weather can literally take off years of the roof’s life and the defects are almost impossible to spot from the ground.  


Plumbing System

There are numerous reasons why plumbing inspections are necessary. The Inspector examines water filtration systems, drains, piping in the kitchen and bathrooms.

The inspector also inspects laundry rooms, tubs, toilets and every shut off valve.

The inspector will run water out of every faucet to test for leaks, water pressure and water temperature.

Older homes typically have polybutylene piping, which can burst at the joint after a period of time. 


Water Heater

It takes a substantial amount of energy to operate a water heater. Some water heaters are gas operated and some are electrical.

The tank water heaters fill up and are consistently kept warm.

Tankless water heaters only operate when the water is turned on and heats the water as it passes through the unit. 

Inspectors would test the heat from the kitchen and bathroom faucets, and whatever visible defects the inspector would notice given the age of the system.


Attic

Attic inspections are performed primarily to investigate any possible roof leaks.

The inspector could also observe, if there are any builder defects with any of the support members that affect the home’s structural integrity. 


Crawl Space/Basement

The crawl space is the lowest point of a house. Which means, it is subject to standing water in and around the area.

Moisture in the crawl space is common and often overlooked by a homeowner.

Moisture can lead to fungal growth (i.e. mold and mildew) rotting wood members and termites.

The inspector could also identify plumbing issues, air duct issues, improper wiring, insulation, foundation issues, wild pests, improper ventilation and moisture barriers.

Unless sealed, the potential defects in a crawl space could be a nightmare.

Many homes in North Carolina don't have basements because of the red clay.

Most basements in North Carolina are built on sloped lots and can still be a resort for standing water, mold and termites. 

When the inspection is performed, everyone is on the edge.

The results of the report can lead to a disagreement, possibly ending in the buyer exercising their right to terminate.

If the defects noted in the inspection report are costly, and the seller declines to address them in any way, it could result in the buyer forfeiting their due diligence money.

It is up to the skills of both the buying agent and listing agent to properly inform their clients, so that realistic measures are taken and all of the necessary options are explored objectively.

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