Real Estate Talk: Inspection process

A property may offer surprises that can cost a great deal of money

By Joseph Marovitch

Updated September 14, 2023

Last month, while I was walking my dog, Elvis, a beautiful and extremely playful Rhodesian pit boxer, on Mount Royal, I received a call from a reader of this column who had purchased a property around Montreal during the height of the pandemic.

I was told that, after possession, the buyer noticed a strong smell of dog urine in the house and that the previous owner owned two large dogs. The buyer asked me if it was possible to have the previous owner pay for the cleaning of the house to rid it of the smell. I had to ask a few questions before I could answer.

My first question was – Did the buyer have an inspection? The answer was no because there were too many buyers at the time, and the buyer’s offer would not have been the accepted offer.

My second question – Was the house purchased with warranty? No, since the seller was leaving the country and did not want to be bothered.

My third question – Why was the smell not noticed during visits before an offer? Because the buyer was wearing a mask due to the pandemic.

… an inspection is imperative, especially if the property is sold without warranty…

Finally, I answered that nothing could be done to force the seller to pay for perceived damages since there was no inspection and no warranty unless the buyer could prove the seller was committing fraud. The buyer told me they paid so much for the house, and now they had to repair it. Not fair!

Either the buyer was not properly informed by its broker, did not have a broker, or did not listen to the broker. In any case, an inspection is imperative, especially if the property is sold without warranty.

Whether purchasing an old home or a new condo, it is always recommended to have a condition of inspection. An inspection indicates present or future problems with the property that can cost you money now or later. The inspector should be trained, experienced and certified by the Canadian Association of Home and Property Inspectors (CAHPI) or the AIBQ.

The inspector is generally responsible for everything they see, which is why it is better to have an inspector who uses a thermal imaging device. The thermal imaging device allows the inspector to examine what is visible and what is not visible to the naked eye, such as cracks, ungrounded electrical wires, humidity in walls, hidden rooms, etc.

Please note an inspection covers everything that can be seen. A home inspector is not responsible for latent or hidden defects which we will discuss in our next topic, With or Without Warranty.

‘An inspection indicates present or future problems with the property that can cost you money now or later.’

The following paragraph is taken directly from a promise to purchase:

INSPECTION BY A PERSON CHOSEN BY THE BUYER
8.1
____This promise to purchase is conditional upon the BUYER being permitted to have the IMMOVABLE inspected by a building inspector or a professional within a period of days following acceptance of this promise to purchase. Should this inspection reveal the existence of a factor relating to the immovable and liable to significantly reduce the value thereof, reduce the income generated thereby or increase the expense relating thereto, the BUYER shall notify the SELLER, in writing, and shall give him a copy of the inspection report within four (4) days following the expiry of the above-mentioned time period. This promise to purchase shall become null and void upon receipt, by the SELLER, of this notification together with a copy of the inspection report. Should the BUYER fail to notify the SELLER within the time period and in the manner specified above, he shall be deemed to have waived this condition.

OR
____By initialling this box, the BUYER acknowledges having been informed of his right to have the IMMOVABLE inspected by a building inspector or a professional and having waived his right to do so.

The clause offers two options: Either to have an inspection or to be informed that an inspection can occur, but the buyer has decided not to have one.

On occasion, the buyer will waive the inspection for a number of possible reasons:

1. The buyer is a contractor and is planning on renovating;
   .
2. To negotiate a better purchase price by offering fewer conditions to make the purchase easier and expedient.

‘It is better to make sure the property you buy is solid and allows you to sleep at night.’

Generally, it is always wise to have an inspection because a property can offer many surprises that can be very costly.

Surprises can include the replacement of windows, cleaning and/or removal of an old leaky oil tank, repair of a major foundation or wall crack, and faulty construction in the garage of a new condo complex allowing water infiltration and further damage. The list is endless…

It is better to make sure the property you buy is solid and allows you to sleep at night.

Process and implications:

• In the promise to purchase, 7 to 10 days are provided from the date of acceptance, in which to perform the inspection;
  .
• Following those specified days, the inspector and buyer have 4 more days to provide the report to the seller, if there is an issue. In the event no issue is submitted in writing to the seller by the deadline, the inspection condition is deemed satisfied;
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• The inspection lasts approximately 2 to 3 hours;
  .
• The cost is generally between $600 to $2000 plus taxes but can be higher depending on the type of property and location;
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• The inspection should include every aspect of the property such as roof, basement, ventilation, electric system, plumbing, bricks, grading, and more;
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• Cosmetic issues include items that are recommended repairs;
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• Structural issues are items that must be addressed sooner (i.e.: foundation, bricks, electrical, plumbing);
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• Upon completion of the inspection, the inspector will provide the buyer with a written detailed report;
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• Should there be an issue in the report that can devalue the property, the seller must receive the report in the specified time period, along with the buyer’s request for a reduction in price, a repair of the issue, or cancellation of the offer;
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• Upon receiving the request for a reduction or repair, the seller has 21 days to remedy the situation, or not;
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• In the event the seller will not remedy the situation, the buyer can either accept the property as-is or cancel the offer.

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.

Next article: To buy/sell with or without warranty and the implications

State of the market

Bank of Canada interest rate 5%
CPI today (inflation rate) 3.3%

Many homeowners are asking why it is taking so long to sell an average-priced property at the same time as complaining that interest rates and carrying costs are too high. The answer is in the question.

‘Properties are usually priced based on past sales of comparable homes within the same area and, to some extent, the municipal evaluation.’

Homes are expensive to purchase and maintain due to high-interest rates and inflation. Properties are usually priced based on past sales of comparable homes within the same area and, to some extent, the municipal evaluation.

The municipal evaluation is based on a 3-year roll and accounts for square footage, number of bedrooms, number of bathrooms, other features, city maintenance costs and average comparable sales in the area. The city evaluation is not the market price of a home but it is a comparable that indicates if one property is worth more than another.

The problem is three-fold. First, there are not enough homes for the number of buyers and renters. The low inventory and high demand cause increased property values.

Second, municipal evaluations are based on the prior pandemic sales when inventory was very low and demand very high. In today’s market, the city evaluations do not reflect the market prices. In most cases, the market price is lower than the city evaluations.

‘Municipal evaluations are based on the prior pandemic sales when inventory was very low and demand very high.’

Third, many homeowners cannot afford the property they are in now due to high inflation and interest rates. However, to sell in a buyer’s market and have to purchase is expensive, and rentals are few and high priced.

There are conditions to purchase at a discount:
1. Purchase all cash.
2. Have good credit, which may permit a lower interest rate.
3. Have a good relationship with your financial institution.

‘Many homeowners cannot afford the property they are in now due to high inflation and interest rates.’

As a note, on October 3 at 7:30 am in the Queen Elizabeth Fairmont Hotel, the Board of Trade will be presenting Nicolas Vincent, the External Non-executive Deputy Governor of the Bank of Canada, who will discuss the economy, inflation rates and housing. I will be attending, and perhaps we will meet there.

Have a great week!

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Feature image: Binyamin Mellish – Pexels

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