Before you buy
An inspection protects you
(Update of the article published on September 6, 2016)
Thinking of buying a property? The OACIQ strongly recommends that you have it inspected prior to purchase. Here are the main steps of this process. If you do business with a real estate brokerage professional authorized by the OACIQ, you will not be alone, as he will guide you before, during and after this stage of the transaction.
Prior to the inspection
Your broker’s responsibilities
In accordance with the Real Estate Brokerage Act and the regulations thereunder, and to ensure that you are properly protected, your broker has an obligation to recommend that you have the property thoroughly inspected by a professional or a recognized building inspector, who must meet certain requirements:
- Have professional liability insurance against faults, errors or omissions in order to compensate you should any of these occur in the course of the building inspection. (A written proof is the best way to verify that the inspector is insured.)
- Perform his inspections in accordance with a recognized standard of practice that provides minimum guidelines, defines specific terms and standardizes the reporting format.
- Use a recognized service agreement that specifies the nature, scope and limits of the services provided by the inspector, as well as their cost. The agreement could also include a clause by which you undertake to read the inspection report attentively and ask questions of the inspector, in order to clearly understand its content.
- Provide a written report, which is essential to give you an appreciation of the condition of the immovable you are proposing to purchase and to help you make an informed decision.
The above criteria will help guide your choice among several potential candidates. Your broker can provide you with a list of inspectors or professionals (e.g. architect, building technologist or structural engineer) who meet these requirements. If so, your broker has an obligation to refer more than one name.
To better protect you, the OACIQ has entered into agreements with the following associations of building inspectors, which meet these criteria:
- National Building Inspectors and Experts Association (NBIEA) - Download the Standard of practice
- Québec Association of Building Inspectors (AIBQ) - Download the Standard of Practice
- Association des thermographes en inspection de bâtiments (ATIB) - Download the Standard of practice
- InterNACHI Québec - Download the Standard of practice
Regardless of which inspection firm you retain, it should ensure that its professionals meet the above requirements.
The inspector you choose will evaluate everything that is visible: structure, roof, plumbing, electrical, etc.
New construction: caution!
Do you think that because the property you are proposing to purchase is new it won’t need an inspection? Think again! It is never recommended to waive the property inspection. An inspection can uncover important factors that will have an impact on the price you will offer to the seller. Although a Guarantee Plan for New Residential Buildings is in place, it may not apply to your situation.
Older home or property sold without legal warranty of quality: beware!
If it makes sense to inspect a new home, it makes even more sense to inspect an older one. Of course, all the information contained in the form Declarations by the seller of the immovable, which the seller must provide, is very useful as it reflects what he knows about the condition and history of his property. However, a proper inspection will supplement this information by going more in-depth. It will also show that you acted prudently.
The broker must inform all the parties to the transaction of any factor of which he is aware that could adversely affect the object of the transaction, such as any negative factors identified in an inspection report issued prior to your promise to purchase. In fact the existence of any prior report must be declared by the seller in the form Declarations by the seller of the immovable.
If the property is being sold without legal warranty of quality (that is, without any guarantee that it is without defect), an inspection is that much more necessary so you will know what you are buying. The inspector performing the inspection must be informed that the property is being sold without legal warranty.
During the inspection
Your broker should be present at the inspection to be able to advise you properly based on the results of the inspection (try to get a price reduction from the seller, for example). It is also important for you to be present. A competent building inspector will take this opportunity to show you the physical elements that require attention and any corrective action needed. These comments must be included in his written report.
After the inspection
Once the inspection has been completed and the expert has sent his report, it is up to you to determine if its content is putting into question the purchase of the property, the price or the conditions. If you require clarification regarding any aspect of the report, do not hesitate to ask the inspector.
Here are the three most common scenarios.
1. No change
You declare yourself satisfied with the inspection and do not ask for any amendment to the Promise to purchase which your broker presented to the seller. The transaction proceeds normally.
2. Renegotiation of the price or conditions for purchase
If the inspection uncovers minor imperfections that don’t really have an impact on the price offered, these should not be used to renegotiate the conditions of the promise to purchase.
However, if significant issues have been uncovered, you may want to:
- ask for a reduction in the purchase price;
- have a more in-depth inspection done of a specific component of the property or have further testing done, concerning pyrite for example; or
- give the seller a period of time in which to carry out repairs.
In the context of a renegotiation, you are not required to give the seller the inspection report or even a part of it. If you wish to do so to justify your price reduction request, your broker will send the seller a full copy or an extract from the inspection report to inform him of the issues noted, clearly indicating the reasons why the report is being sent and, if applicable, the fact that the purpose is not to cancel the promise to purchase.
In addition, in some cases the OACIQ recommends to ask for a price reduction rather than repairs, which could be difficult to implement.
The seller will have the option to:
- agree to a price reduction or to carry out the repairs himself;
- agree to extend the deadline to give the prospective buyer time to have more in-depth testing done;
- pursue negotiations; or
- reject your demands.
You are able to come to an agreement? Good. If changes are required to the Promise to purchase, your broker and the seller’s broker will put them in writing in an Amendments form, which will be signed by both parties. This form will become an integral part of the promise to purchase and must also be forwarded to the lender. It must indicate that further to the inspection the parties agree to amend the promise to purchase, and it must be signed within the deadline specified in the inspection condition.
3. Cancellation of the sale
If, after reading the inspection report and noting in good faith the presence of significant factors, you no longer wish to purchase the property, you must, in accordance with generally used inspection clauses and within the deadline specified, send a notice to this effect to the seller, accompanied by a copy of the inspection report. It is the receipt of this notice by the seller which results in the cancellation of the promise to purchase. It is important to keep a proof that the notice and the report were received by the seller.