Home Inspection Repair Estimates and the New Home Buying Process

The recent settlement by the National Association of Realtors (NAR) has significant implications for the real estate industry and the role of home inspection and repair estimate firms. The settlement, which resulted from accusations of promoting inflated consumer costs, led to the elimination of the standard sales commission rates whereby sellers’ agents offered buyers agents fairly standardized and disclosed fees, often 3%. This change is expected to fundamentally transform how Americans buy and sell homes.  Some buyers will seek to save the buyer fee by representing themselves. This could prove risky.

The settlement could make the home buying process cheaper, and some buyer’s agents will charge flat fees or non-contingent fees, but buyers will likely want to know what they get on the buyer side aside from writing up a contract offer.

In this new landscape, the role of home inspection firms becomes more critical, especially for buyers not using buyer agents. Home inspections provide an objective evaluation of a property’s condition, helping to identify potential issues that could impact its value, safety, and livability. They are the bedrock of integrity in the market, providing a bridge of clarity and assurance for both buyers and sellers.

Moreover, home inspections can arm buyers with knowledge about the extent and nature of any home defects, ensuring such defects are either corrected and/or negotiated into the sale price. This is particularly important in the absence of a buyer agent who would typically guide the buyer through these aspects.

Furthermore, repair estimates provided by home services firms can be a powerful tool for negotiation. If a home inspection report reveals any serious problems, buyers might be able to use the results to negotiate with the seller for repairs, a discount, or credit toward closing costs. This can, in aggregate, save homeowners billions and lower both housing prices and overall consumer costs.

Inspection repair estimates offer several benefits to real estate agents, home buyers, lenders, and insurance companies:

For Real Estate Agents:

• Negotiation Power: Repair estimates can provide a solid basis for negotiation. Agents can use these estimates to negotiate for repairs, a discount, or credit toward closing costs.
• Reduced Liability: By providing a third-party estimate for repairs, agents can reduce their liability by failing to disclose material defects.
• Time and Stress Reduction: Repair estimates can save agents time and reduce stress by providing accurate and quick repair cost assessments.
• Improved Customer Satisfaction: By helping buyers understand potential repair costs, agents can improve customer satisfaction.

For Home Buyers:

• Informed Decision Making: Repair estimates can help home buyers make informed decisions about the purchase. They provide a clear understanding of the condition of the property and the potential costs associated with any necessary repairs.
• Negotiation Leverage: Just like agents, home buyers can use repair estimates as a negotiation tool. If the inspection report reveals serious problems, buyers can use the results to negotiate with the seller.
• Budget Planning: Repair estimates can help home buyers plan their budget. They provide an idea of the immediate attention required for certain aspects of the home, like electrical panels or air conditioning, allowing buyers to budget for these repairs.
• Avoiding Future Costs: Small repair issues today can become big repair costs tomorrow if left unresolved. Repair estimates can help home buyers avoid these future costs by addressing issues early.

For Lenders and Insurance Companies:

• Risk Mitigation: Lenders are in the business of risk management. A detailed home inspection with repair estimates can provide a more accurate assessment of a property’s condition. This allows lenders to better understand the potential risks associated with the loan.
• Loan-to-Value Ratio: The loan-to-value (LTV) ratio is a critical factor for lenders when approving a mortgage. If a home inspection reveals necessary repairs, the repair estimates can affect the home’s appraised value and, consequently, the LTV ratio. Most lenders have limits as to how large the seller’s credits can be with 5% or 6% being typical. If buyer agents are paid via a seller credit at closing, then this reduces the amount of potential repair credits, and/or will result in renegotiating the price.
• Protecting the Investment: Lenders have a vested interest in the property because it serves as collateral for the mortgage. If a property requires significant repairs, it could affect the borrower’s ability to make mortgage payments, leading to potential foreclosure. Repair estimates help lenders gauge this risk.
• Insurance Purposes: Home insurance companies often require a home inspection before issuing a policy. If significant repairs are needed, it could affect the cost and terms of the insurance, which is a consideration for lenders as they want to ensure the property is adequately insured.
• Borrower’s Financial Health: Significant repair costs could strain a borrower’s finances, potentially affecting their ability to repay the loan. Repair estimates give lenders insight into these potential additional costs.

There are still remaining questions yet to be answered. The National Association of Realtors settlement is indeed poised to bring about significant changes in the real estate industry. Here are some potential implications:

1. Innovation: The settlement could spur innovation in the industry, with new business models and a menu of services emerging. This could include everything from different compensation models to more efficient processes.
2. Cost Savings: The changes could lead to cost savings for consumers. For example, some buyers might choose not to use a broker at all, or pay much less than the ubiquitous 3%, potentially saving on commission fees.
3. Increased Competition: The settlement could increase competition in the marketplace, particularly from discount competitors. This could ultimately drive down commissions for consumers.
4. More Choices for Consumers: The settlement could give both sellers and buyers more choices about whether they want to retain a real estate broker or agent, how they want to compensate that broker or agent, what services they will receive, and it also empowers their ability to negotiate.
5. Use of Other Professionals: We might see people using other sorts of professionals, like real estate attorneys instead of brokers. This could provide consumers with more options and potentially lead to cost savings.

However, it’s important to note that these changes might not happen overnight. It could take a few years for the full effects of the settlement to become apparent. But those who adapt quickly to the new landscape will likely be the ones who thrive in the long run.

In conclusion, inspection repair estimates play a crucial role in the home buying process, benefiting real estate agents and home buyers as well as lenders and insurance companies by providing a clear, objective assessment of potential repair costs. This information can be used to negotiate terms, assess risk, protect an investment, plan budgets, and make informed decisions about property purchases.

The NAR settlement has ushered in a new era in the real estate industry, where transparency, consumer empowerment, and informed decision-making are paramount. In this context, home inspections repair estimate firms play a crucial role, especially for buyers not using buyer agents, in ensuring a fair and beneficial transaction for all parties involved.