Andrew Wetzel's Musings

March 25, 2019

Municipal Inspections

Filed under: Buying,Inspections and Contingencies,Marketing,Selling — awetzel @ 3:59 PM

A Real Estate sale is a negotiation between a buyer and a seller.  While either may be more knowledgeable or have better representation than the other, it is a “one-to-one” exchange and most are what we call “arm’s length” meaning that neither party is under duress or pressure.  A seller puts their property on the market and prices it however they see fit.  A buyer can make an offer based on how much they like it and want to own it.  If the sale is financed, an appraiser will compare the selling price and terms to the market.

There are various steps that may occur between executing a purchase agreement and getting to settlement.  One of them is a resale or “use and occupancy” inspection that is required by many municipalities regardless of the details of the agreement.  Who pays for the inspection and any subsequent repairs, if any, is subject to negotiation but a clear certification or a “conditional” one may be required to settle.

The municipal inspection allows the municipality to collect a fee for inspecting the property.  Many require an additional fee should a reinspection be needed.  These inspections generate revenue.  Beyond that, what is the point of their poking their nose into an otherwise private transaction?  They will tell you that it is to make sure that there are no safety issues which would be understandable if they only inspected “public” areas like sidewalks, curbs and anything that could cause harm to the general public.  I think that reasonable although the obvious flaw in that logic is that this intrusive process only encompasses those properties being sold, whether they settle or not, ignoring the majority of properties that do not change ownership.  What happens if they have broken sidewalks or curbs?  People who sell their property are essentially being penalized.

My concern is that many municipalities go beyond what seems appropriate, choosing to enter the structure and dictate what has to be done in order for the transfer of ownership to be allowed.  I had one inspector require a Living Room wall to be completely re-painted because someone had drawn a line on the wall with a magic marker.  Regardless of whether the purchase agreement has any inspection contingencies or not, regardless of how much the buyer is paying the seller to complete the sale and regardless of the competence of the principals and anyone else involved, many municipalities think it their business to inject themselves into a private transaction, some to the point of being as onerous as an actual property inspection.  I consider this meddling and an example of over-reach.  It also fails to achieve a realistic goal as many houses do not change hands for many years so they are not inspected regardless of their condition.  Look at how many people perish annually because properties lack working smoke detectors?  I am not saying that this is the fault of the municipality but wonder why they don’t visit every property regularly if safety is their priority?

I do believe that rental inspections make sense as, unfortunately, there are many landlords who do not properly maintain their properties and many rentals occur without the benefit of a licensed Real Estate professional.  I do find it interesting that many sale inspections are more intrusive than rental inspections which makes no sense to me.  I think that tenants deserve more protection than many of these inspections afford them.  At the very least, both inspections should be similar.

Over the course of my career, I have heard many horror stories about municipalities requiring repairs that were costly, made no sense and were in fact not wanted by the buyer or seller.  They have even caused consenting adults to delay settlement.  Fortunately, the Real Estate community in PA pushed back and was able to have the law changed so that people could complete a Real Estate sale even if repairs were not completed.

Houses should be priced and are typically sold based on their condition.  The PA agreement of sale has a section devoted to the municipal inspection.  The seller does have the option to require that the buyer be responsible for ordering the certification and/ or paying for repairs.  Unfortunately, many houses are marketed with that stipulation without providing an actual list of what the buyer is expected to do which makes no sense.  Have the inspection and provide the list so buyers are not surprised later.  Many buyers simply cannot tackle the cost of these repairs as they have enough trouble saving for paying their closing costs.

It does seem that lower income areas are more heavily burdened by municipal inspection requirements which makes some sense as some of those owners may not be financially able to maintain their properties over time.  In that case, a sale offers an opportunity to make changes which could benefit buyers.  However, an owner who has completed municipal repairs only to learn that a buyer could not get financing has two problems:  they owe contractors money and they have no sale.

The ideal situation as far as I see it would be to hold all property owners to some standard in order to protect the public.  If this could work, there would be no municipal surprise when a property is sold.

There is no time for inexperience, empty promises or false expectations!

 Remember:  HIRE WISELY!  We are not all the same!

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