Real Estate Maui Now, Ask the Expert: Home Inspections During Escrow

Real Estate Maui Now: Ask the Expert with Dave Futch.

Today’s question has been answered by Dave Futch of Coldwell Banker Island Properties.

Dear REMN Expert,

Q: “What happens in a home inspection during escrow?”

A: During the first two weeks of an escrow—the buyer’s due diligence period, known as the “inspection”—the buyer must have the property and the structure(s) inspected by licensed experts.

The inspections are often guided by the “Seller’s Disclosure,” which is written by the seller.

Should the inspection reveal substantial and negative discoveries during this process and it is determined that the results of this due diligence is unsatisfactory, the buyer may hire licensed contractors to evaluate and quantify the problems.

This may become a “good faith” opportunity to negotiate with the seller to bring the property back to the condition the buyer anticipated when the offer was presented.

If an agreement is not reached, the buyer may cancel the transaction, without the loss of his or her initial earnest money deposit.

After the inspection, the inspectors submit finely detailed reports to the buyer for review. Buyers may select certain items that have a significant negative impact on the value or pose “health and safety” concerns, and request that the seller either repair them prior to the closing, or credit the buyer so her or she can complete the repairs in his or her own way or style.

In some cases, the purchase contract includes an as-is clause, which indicates that seller will not make any credits or repairs. However, in some cases, the discoveries are severe enough to go forward with a request for repairs or credits.

Hawai‘i is an “As-Is State,” so the seller is not required to make adjustments—with or without an as-Is addendum.

However, the buyer may make requests, and if the seller accommodates, it’s essentially out of good faith and integrity.

In the instance where repairs are agreed upon and made prior to the closing, the buyer then has the repairs inspected by the home inspector during the final walk-through. If the repairs are acceptable, then the closing proceeds on schedule. If the repairs are not made to code or are not approved by the buyer, he or she may elect to postpone closing until the repairs are satisfactory or close escrow on schedule.

If the escrow closes, the purchase contract will include the seller’s escrow instruction to withhold 150% of the cost of the repair. The inspector returns to inspect the repairs.

Once approved by the buyer, escrow then pays the contractor directly and disburses the remainder of the funds to the seller.

The inspection period is often an emotional time as buyers discovers their “dream property” is not “perfect.” They are left to to deal with the circumstances with a level head.

It usually works out in the end, so don’t be discouraged during the process… keep your eyes on the prize!

If you have any additional questions about inspectors, inspections or the process, get in touch with Dave Futch.