What Is A Home Inspection & Why Is It So Important

The residential home inspection and inspection contingency period is an integral part of every real estate purchase. It’s a chance for all parties to learn more about the property that is for sale, and renegotiate contract terms if needed. The inspection is often the most consequential contingency in the Colorado Contract to Buy and Sell, but it can be a confusing time for buyers and sellers who haven’t been through it before. Without a complete understanding of the process, and what a home inspection can or can’t accomplish, buyers and sellers may feel unclear, apprehensive, or misled. 

We don’t want that, so today, we’re going to tackle some FAQs about this important part of real estate! 

What Is A Home Inspection? 

A home inspection is a non-invasive, visual examination of the accessible areas of a residential property for the purpose of identifying any issues. Issues found during a home inspection are referred to as ‘defects’. A residential home inspection covers a thorough examination of all systems and components of both the interior and exterior of a property. Findings of the physical examination are then documented in an inspection report. While homeowners can have a home inspection done at any time to learn more about their house, they are most commonly performed as a part of a real estate transaction. 

Who Performs The Home Inspection?

While buyers are within their right to inspect a property themselves, unless you are a licensed professional in this space, we highly recommend hiring a professional Home Inspector who is certified with InterNACHI (The International Association of Certified Home Inspectors - www.nachi.org/CO). Residential home inspection is not a regulated industry in Colorado. So we believe it’s essential to work with an inspection company that is fully bonded and insured, and an Inspector who has passed InterNACHI’s rigorous certification exam and adheres to their code of ethics. Luckily, there are several fantastic, certified Home Inspection companies working in the Summit Area! 

Who Pays For The Inspection?

Since the inspection report is for the information and benefit of the buyer, the inspection and standard add-on services are almost always a buyer expense. While Inspectors use a standard methodology for every report, buyers can gain invaluable insight on their future home by building a relationship with their home inspector. Inspectors can answer questions on the report, make recommendations on how to fix issues that are found, and even show buyers how to operate and maintain mechanical systems, plumbing systems, and more. Specialized inspections may be a negotiable expense, and who covers the cost will be dictated by the Inspection Resolution. Unfortunately, if there are issues found with the property, and the buyer and the seller cannot come to terms on an Inspection Resolution, inspection costs are not refundable.

What Does The Home Inspection Cover?

Most inspection reports will document details on the following (and more), including whether a defect was found, and the severity of each defect.

• All appliances such as ovens, refrigerators, dishwashers, washers, and dryers.
• Mechanical and plumbing systems such as furnaces, boilers, water heaters and well pumps. 
• Basements, crawlspaces, and attics.
• Interior finishes such as flooring, drywall, light fixtures and cabinets.
• Fireplaces
• Kitchen and bathroom plumbing fixtures.  
• Decks, balconies, patios, and driveways. 
• Garages and outbuildings. 
• Exterior siding and windows.
• Landscaping, grading, and foundations. 
• Electrical panels and outlets. 
• Roofs (inspected via drone; on-roof inspections can be scheduled with a roofing specialist if needed). 
• Thermal imaging and 360 degree photos. 

Additionally, there are a few inspection add-ons we often recommend when applicable. These include sewer scopes (for properties on municipal water), well strength tests (testing the water pressure and flow rate of a well), water quality testing (we recommend this for properties on well water), and 72 hour radon inspections. Radon is a big deal in Colorado, and while I won’t fully cover the topic now, please find the EPA Buyers & Sellers Guide to Radon here.

If a possible issue is identified that’s out of the scope of a standard home inspection, buyers can hire a specialist to inspect the property as well. Some examples of this include mold remediators, structural engineers, and licensed plumbers/HVAC techs. 

Does The Buyer Have To Attend The Inspection In Person? 

Nope! All licensed home inspectors welcome buyers to attend, but it is not required. An inspector’s goal is to help buyers gain confidence in their purchase, so if a buyer can’t attend in person, an inspector will do whatever it takes to achieve that - whether by video call, 360 degree photography, or a followup call after the buyer receives the report. Our team also offers to attend all of our clients’ inspections, whether they’re able to come or not, to act as our clients’ extra eyes and ears. Sellers should note that inspectors in the Summit Area are affiliate members of our local REALTOR Board, and can schedule their inspection and gain access to homes in the same way as real estate agents. This helps ensure the physical home inspection is as noninvasive and secure as possible. 

How Does My Contract’s Inspection Contingency Work? 

The inspection contingency in the Colorado Contract to Buy and Sell is made up of three deadlines, each with a corresponding standard contract. Here’s a brief explanation of what each  means, and how they relate to one another to make up what most Realtors refer to as ‘the inspection period’. 

• Inspection Objection Deadline: this is the date by which the buyer has to submit their Inspection Objection to the seller*. The Objection is what the buyers want the seller to do. The Objection is written as a list of every defect found in the inspection the buyers want to address. The list both describes each issue, and proposes a fix for each one with a deadline for completion. The buyers are the only party who sign the Objection.
• Inspection Resolution Deadline: this is the date by which the seller must respond to the Inspection Objection with their proposed Resolution. It’s usually 1-3 days after the Objection deadline. The Resolution is what the sellers are willing to do. It can be written as a list detailing each fix, or it can be a generalized statement (such as, sellers will hire a licensed contractor to fix all items)**. The sellers sign the Resolution, and if the buyers agree with the terms, the buyers will sign too. Once signed by all parties, the seller becomes contractually obligated to do everything detailed in the Resolution by the agreed upon time. If the buyers do not agree with the terms and no compromise can be reached, the Contract to Buy and Sell will automatically terminate and earnest money will be returned. Note that in the Summit Area, many Inspection Resolutions are negotiated verbally between the parties’ Realtors before being put in writing. You won’t be sending multiple Objections and Resolutions back and forth! 
• Inspection Termination Deadline: if anything in the inspection makes the buyers realize ‘nope, not for me’, the buyers can choose to terminate the contract on or before the Inspection Termination Deadline. The Inspection Termination deadline is usually the same day as the Inspection Objection deadline. Note that the Termination and the Objection are mutually exclusive. If you submit an Objection, you have to go through the Resolution negotiation. The Termination is only used if the buyers are not at all interested in moving forward after the inspection’s findings. To end the Contract to Buy and Sell this way, the buyers sign a contractual Notice to Terminate and deliver it to the sellers. Once the Notice is given, earnest money will be returned to the buyers. While it’s best practice to share anything uncovered in the inspection with the sellers, buyers can terminate without having to justify their decision. This is why I think it’s critical for all buyers - no matter how hot the market - include the Inspection Termination deadline in their offers. It’s one of the biggest buyer safeguards the Colorado Contract has! 

* Ideally, I recommend buyers have their home inspection completed at least two days before the first inspection deadline, so we have enough time to go over the report and strategize.

** In the Summit Area, it can be difficult to find and schedule contractors and handymen for projects under tight deadlines. It’s just a reality of living in a rural mountain community! Because of this, it is common for sellers to offer either a reduced sales price or a closing credit to the buyer instead of completing the material fixes themselves. If the buyers agree to a monetary resolution, the Inspection Resolution contract is not used. Instead, the buyers will withdraw their Inspection Objection via a second signature, and the sellers and buyers will then sign a Contract Amendment with the new sales price or credit. 

If I’m Buying A House ‘As-Is’ Can I Still Get An Inspection? 

Yes! This is one of the biggest misconceptions we encounter on the inspection contingency. Just because a property is being sold ‘as is’, does not mean that a buyer automatically loses their right to have the home inspected and know what they’re getting into. In fact, it doesn’t even mean you have to waive your inspection contingency! Phrases like “this home is being sold in ‘as-is’ condition” or “buyers agree to purchase home ‘as-is’” are used to convey intent in marketing and during negotiations, but are non-binding terms. Or to put it differently, legally speaking, there is no such thing as ‘as-is’. If a seller includes a remark that the home is being sold ‘as-is’ in the listing, it indicates that they know some (or a lot of) work is needed, and they want buyers to agree to take on the responsibility for any repairs. Just because this is the ideal scenario for the seller, does not mean buyers have to accept those terms. For our buyers looking at an ‘as-is’ purchase, our recommendation is usually to keep the Inspection Objection, Inspection Resolution, and the Inspection Termination deadlines in the contract, and include language accompanying the offer stating: 

The buyer is willing to take the property in "as is" condition, unless a major health, safety or structural issue is found; in which case buyers may choose to terminate or negotiate a resolution with the seller.

This type of provision is most successful when the work appears to be mostly cosmetic to both the seller and the buyer; conditions like outdated interiors, lots of wear and tear from rentals, an estate sale, etc. It gives the seller some assurance that the buyers won't nickel and dime them over the inspection report, but also reiterates that the buyers retain all inspection contingency rights in case something significant is uncovered. 

Of course, in an ultra competitive sellers market like the one we just lived through, buyers may consider giving up their Inspection Objection and Inspection Resolution to make their offer more competitive. However, buyers should always keep their Inspection Termination, and I will always advise buyers to still have the property inspected by a professional just to make absolutely sure. And this nicely brings us to our next question. 

If I Waived My Contingencies, Can I Still Renegotiate If Something Comes Up In The Inspection? 

The answer to this question is more nuanced, but yes, buyers can try! If the Inspection Objection and Resolution deadlines are not included in the Contract and something significant is found in the inspection, there is no formal framework for renegotiating, but buyers can absolutely still have their Realtor share the inspection findings with the sellers and ask them in good faith to meet halfway. I cannot tell you how many times over the last 5+ years our team has maneuvered this exact scenario, from both sides! 

The seller in this scenario has the contractual right to refuse to renegotiate, but sellers, let me ask you a hypothetical: if you’re already a couple weeks under contract, and the inspection finds out you need a new roof, would you rather let the buyers terminate the contract, return the earnest money, put your house back on the market, and have to disclose your roof is shot to new prospects (or worse - replace it yourself), or would you rather lower your sales price or give a credit to the buyers who are already on the hook and invested? The vast majority of the time, sellers will choose the latter, and they're not wrong to do so. 

It’s also important for both buyers and sellers to keep in mind that if a new mortgage is involved, lenders can decline to underwrite the loan if serious home inspection defects like end-of-life roofs, structural problems, or heating or water issues are present. Even if the Inspection Termination was waived or the deadline passed, a buyer could still terminate the contract in this situation based on their loan deadlines and have their earnest money returned.

What Home Inspection Findings Are The Biggest Problems? 

The biggest issues that can be uncovered in a home inspection can be categorized into what I refer to as the ‘Big Three’: Structural, Heath, and Safety. If an issue is noted that falls into one of these categories, it is going to be flagged as a significant defect. 

Structural problems are the biggest red flag for buyers and problematic fixes for sellers. Structural defects include things like water damage, broken windows/window seals, rotting decks, compromised roofs, and sinking/crumbling foundations. All of these things require specialized, professional assessment, and are big ticket repairs. Serious consideration should be given to any structural defect by both sellers and buyers. These types of issues are often a can of worms, and will certainly become bigger problems if left unaddressed. 

Health defects really run the gamut from cheap and easy fixes, to costly and time consuming projects. Carbon monoxide detectors that need new batteries are considered health defects, but so are high radon levels and mold. High radon levels are much more common in the Colorado mountains than mold, but remediating either of these health concerns requires a specialist, and usually has a price tag in the $1,500-$5,000 range. 

Safety defects, while still not to be taken lightly, are normally the most easily remedied of the ‘Big Three’. Examples of safety defects we often see include old electrical outlets, loose stairway railings, or worn mechanical system wiring. All of these defects have straightforward and inexpensive fixes: old outlets can be replaced with new GFCI outlets, loose railings take an hour of labor to re-secure, and new connectors for a furnace, water heater or boiler are under $35.

The most costly safety-related defect you’ll encounter is if there is something wrong with a heating system - but even though more expensive, it’s still easy to hire a plumber or HVAC tech in our area to take the job.

What Do Sellers & Buyers Typically Agree To On An Inspection Resolution? 

As you can imagine, Inspection Resolutions vary wildly. Every property is unique and every transaction differs. That being said, in the Summit Area, there are a few compromises between the sellers and buyers we see more often than not. 

Minor Fixes: when a property is in overall good shape and doesn’t need much, sellers often agree to take care of some marginal or minor fixes themselves or with a handyman/GC before closing. 

Escrowed Funds: if a significant defect is found that requires a lengthy repair, sellers can agree to set aside a portion of their profit with the Title Company (called ‘escrowing funds’) to pay the final bill once the repair is complete. Once the agreed-upon project is finished, the invoice is given to the Title Company to pay out of the escrow account. Any amount left in the escrow account is then released to the seller. This type of resolution is less common in our market, but it comes in handy if a seller does not want to pay cash out of pocket, or if a seller agrees to fix something that has an unknowable timeline or cost.  

Credits: as mentioned above, around here, it can be difficult to find and schedule contractors and handymen under tight deadlines. It’s just a reality of living in a rural mountain community! Because of this, it is very common for sellers to offer either a reduced sales price or a closing credit to the buyer instead of completing the repairs or projects before closing. A reduced sales price is usually used if the buyer is purchasing in cash. A credit towards the buyers’ closing costs is usually offered if the buyer is purchasing the property with a mortgage. The rationale is that the buyers can then use this cash saved to tackle any needed home repairs themselves after closing. 

What Is A Seller’s Pre-Inspection? 

Simply put, a seller’s pre-inspection is a home inspection paid for by a seller and performed by a licensed inspector before the seller’s property goes on the market. While not commonplace, a pre-inspection can be valuable to both buyers and sellers.

There are a couple scenarios in which a seller could benefit from a pre-inspection. The first is if a seller is selling a home they don’t know much about - perhaps the property was inherited, or professionally managed by a rental company, or purchased without an inspection. If a seller who doesn’t have an in-depth history of their home is hoping to sell for top dollar, a pre-inspection can help identify defects (or lack thereof) before choosing a listing price and going on the market. Sellers can then better avoid surprises and costly concessions further down the line.

The second scenario in which a seller might consider a pre-inspection is the opposite side of the coin. If a seller has taken exceptionally good care of their home and knows everything is in working order, a pre-inspection report from a licensed professional can be a great selling point to include on a listing. Buyers will see the spotless inspection report upfront, and take the proven condition of the property into account when writing their offer. A steller pre-inspection can help sellers sell with more favorable terms and for a higher price. 

Regardless of why a seller has chosen to get a pre-inspection, it’s never a bad thing to receive as a buyer. A pre-inspection allows buyers to see what they’re getting into early on. If the report was written by a home inspector the buyer trusts, they could consider saving the cost of buying their own home inspection. If a buyer still prefers to hire their own inspector, the pre-inspection report can guide the second inspection to see if defects have gotten better or worse. 

Does A Home Inspection Uncover All Current and Future Issues? 

Unfortunately, and hopefully not surprisingly, no. A home inspection will not reveal every issue that exists or could exist in the future. Because an inspector can only observe conditions on the date of the inspection, and the inspection is required to be visual, there is no guarantee that every defect will be uncovered. Owning real property will always come with risks; there’s no way around it. Home inspections can be immensely beneficial, but homeowners should always be prepared for both routine and unexpected maintenance and upkeep at the start of their ownership and in the future.