Homebuying 101: Inspections Addendum

When we begin working with first-time home buyers, everyone seems to be most interested in the same thing: “when do I do the home inspection and how does it work?”  The home inspection is every first-time homebuyer’s biggest fear.  Will it pass?  Will there be anything wrong with the house?

Rest easy, the home inspection report is not a pass/fail report.  But, there will be lots of items “wrong” with the house.  It doesn’t matter if it is newly constructed, or a 50 year old house, there will always be areas of the house that are not perfect - and anything that is not perfect will be documented on the inspection report.  Remember, owning a home is work!  There is maintenance that comes along with keeping your property as beautiful and functional as it was the day it was built!  Home inspection reports are not only going to point out defects at the property, but they will also give you a snapshot of what needs immediate maintenance, or what might need maintenance in the next few years.

So back to the big question: how does the home inspection process work in Maryland?  Well, it will depend on how you choose to set it up in your purchase offer!  There are two traditional options:

1. Property Inspections Addendum

2. As-Is Addendum

The Property Inspections Addendum is an agreement between the buyer and the seller where the buyer receives a specified number of days (after the contract is ratified) to conduct particular types of inspections.  Most buyers will ask for 5-10 days to conduct these inspections - it’s a negotiable number.  The Structural & Mechanical inspection is the traditional “home inspection” that everyone thinks of.  Additionally, buyers can ask the seller for permission to inspect for mold, test for radon or lead, and many other types of inspections.  Once you receive the test results or the home inspection report back, then the buyer has the opportunity to ask the seller to repair any items that were revealed to be defective.  The buyer, with the help of their agent, will put together a list of the defective items and send it, along with a copy of the inspection reports, to the seller’s agent within the timeframe that the buyer and seller agreed to operate within.  The seller then has 5 days to formally respond to the buyer with what they are willing to do.  Their options are:

1. Repair all of the noted defects

2. Repair some of the noted defects

3. Repair none of the noted defects

4. Offer a monetary credit to the buyer in lieu of repair

If the seller offers to do anything other than #1, the buyer has the right to walk away from the contract entirely!  In practice, this usually becomes another round of negotiation where the buyer and the seller whittle down the list to the most important items.  (In our experience, about 80% of inspection negotiations are successful with both the buyer and seller coming to an agreement that is acceptable to all!)  Once they have come to an agreement, it is put into writing and signed by all parties.  The seller then has until the day of settlement to complete the agreed-upon repairs and provide proof of repair to the buyer.  The buyer will also be able to inspect the repairs themself when they conduct the final walk-through just before settlement.

The As-Is Inspection Addendum offers two options for the buyer to choose:

1. As-Is Without Inspection

2. As-Is with Inspections and the Right to Terminate

As-Is Without Inspection is exactly as the name implies: the buyer agrees to purchase the property without any inspection whatsoever! As-Is with Inspections and the Right to Terminate is much more common and typically what buyers and sellers are referring to when advertising that a property is sold “As-Is”. Under this section of the agreement, the buyer asks for a specified number of days after ratification - again 5-10 is most common in my experience - to conduct any inspections they wish to at the property. Unlike the Property Inspections Addendum, the buyer does not have to specify which types of inspections they would like to do. Within the agreed-upon timeframe, the buyer has the unconditional right to terminate the contract - they don’t even have to give the seller a reason why! The intended benefit of the As-Is Addendum to the seller is that the buyer is not provided with an opportunity to ask for any repairs; it is a take-it or leave-it situation. The As-Is Addendum can, however, have unintended consequences. Sellers are often eager to sign the As-Is Addendum with the buyer, only to have “seller’s remorse” when the buyer walks away from the deal without giving them an opportunity to make any repairs. Then it’s back to the market for the seller in an attempt to find a new buyer.

The As-Is Addendum also makes two other changes to the contract - two changes that many buyers, sellers and even their agents sometimes forget about. The Maryland Association of Realtors’ standard Contract of Sale has a built-in wood destroying insect (termite) inspection paragraph that is completely separate from either of the inspection addenda we have discussed thus far.  The Association of Realtors must have thought it was an awfully important inspection clause to put into the actual contract of sale and make it separate from the optional inspection addenda.  The paragraph gives the buyer the right to conduct a termite inspection anytime before settlement and obligates a seller to make certain repairs if termite damage or a live infestation is found.  The As-Is addendum DELETES this paragraph from the contract.  The contract of sale also specifies the condition for which the seller is obligated to turn the home over to the buyer at settlement: “vacant, clear of trash and debris, broom clean and in substantially the same condition as existed on the Date of Contract Acceptance.”  The As-Is Addendum (either with, or without inspections) DELETES this sentence from the contract as well.  This could have serious ramifications for a buyer depending on the type of sale.  Buyers should be sure to discuss these ramifications with their real estate agent when preparing their purchase offer!

Pro-Tip: An often-forgotten alternative to submitting an As-Is Without Inspection Addendum, is to simply decline inspections in the appropriate section of the Contract of Sale.  This accomplishes the objective of purchasing the home without inspections, but retains your ability to check for termites and ensures the seller turns the home over to you in good condition!

Frequently Asked Questions:

• How are the number of inspection “days” measured or calculated?  The number of days are measured from the Date of Contract Acceptance (aka the Contract Ratification Date) which is the date that the last party signs the last signature on the contract AND delivers it back to the other party.  That day is considered day zero and the following day would be considered day one.

• The listing says the home is sold As-Is.  Does that mean I can’t do a home inspection?  No, it most likely means that the seller will only entertain purchase offers that contain the As-Is Addendum, but not the Property Inspections Addendum.  Nine times out of ten, the seller will still allow the buyer to conduct inspections and terminate if they are unsatisfied.  

• Along the same lines… Is the seller allowing home inspections?  Remember, almost everything in the Contract of Sale is up for negotiation!  It is extremely rare that a seller will not allow any inspections.  Instead, buyers are free to include any terms they would like in the purchase offer.  In competitive markets, such as the one we have seen in 2021 and 2022, buyers must be keenly aware of their competition.  For example, if a seller receives 3 purchase offers, all of which have the same terms but one of them offers to purchase the home As-Is Without Inspection, you can imagine which offer the seller is going to choose.  It’s not that the seller wasn’t allowing home inspections, but most sellers will be drooling over the thought of not having to negotiate through an inspection period with a buyer.

• Under the Property Inspections Addendum, what types of repairs is the buyer allowed to request from the seller?  This could be the topic of an entire separate blog post!  This is one of the most widely-debated topics between buyers, sellers and their agents.  On one hand, that Property Inspections Addendum is pretty clear.  It states in BOLD print: “This Addendum and the inspection(s) provided herein is NOT for the purpose of making items of a routine maintenance and/or cosmetic nature the subject of further negotiations between Buyer and Seller.”  If you’ve ever read a home inspection report, this eliminates the majority of the items that are usually noted, and leaves us looking for items, components and systems in the home that are truly defective (i.e. broken, not working as intended).  On the other hand, the contract does not provide a remedy to a seller if the buyer submits an unreasonable request.  This can create turmoil in some negotiations. 

Whether you are a buyer or a seller, be sure to work with an experienced real estate agent who can represent your interests through a transaction.  Call or email our team for a no-obligation consultation, or to simply ask a question about how something works!