New proposed Massachusetts legislation would dramatically change the homebuying game when it comes to home inspections. Why is this important?

In one of the most competitive housing markets in the country, buyers are forced to drop one of the most important consumer protections afforded them in the purchase process: The home inspection.

State Senator Michael Moore and State Representative Brian Ashe have offered a solution. They have proposed legislation that would remove any home inspection language from an offer, affording buyers the right to have a home inspection after a seller accepts their offer. It’s called SD1504.

Could SD1504 help or hinder the housing market? Who benefits? Would prices drop?

First, let’s look the pros and cons of having home inspections at all.

Does the following scenario sound familiar?

After years of hard work, sacrifice and squirreling away savings, you made the decision to buy a home. You’re ready for homeownership! You’ve spent several months on the hunt. You’ve thrown 4 or 5 offers into the mix, but they’ve taken no purchase.

And finally. You find what you think is the perfect home. The one.

You saw for the only time at a busy open house. You call your agent to tell them you’re interested. The listing agent tells you that if you want the home you need to put an offer in that evening. You race home and call your lender to crunch your numbers. Your agent, experienced and confident, informs you that there are already six offers on the home. You want this home.

Lender gives you the green light to extend yourself somewhat. It’ll hurt a little bit, but you can make it work over the mid-term. You submit a strong offer, well above the list. You’re willing to waive the appraisal. It’s improbable, but a low appraisal would stretch you pretty thin, but you decide it’s worth the risk.

But your agent informs you that the listing agent suggested that you consider dropping your inspection contingency to stay competitive.

You’ve spent less than an hour in the home. It was crowded with open house traffic. You certainly didn’t pore over every inch of the home.

You were trying to answer the more stylistic questions: Could you see yourself living there? Is this enough natural light? Can you add a half-bath? You weren’t looking closely at the systems, at the wiring, at the roof, at the siding, at the structure, or foundation.

If the deal goes through, most of your savings will go into the down payment. You won’t much left over for unexpected repairs or untimely upgrades. What if there was something you missed that would lead to an expensive repair or replacement in the immediate future?

What do you do?

Can any fiscally responsible homebuyer just close their eyes and buy the home? Is that reasonable? Is it fair? It may not be fair, but it’s pretty common these days.

For so many people who’ve purchased a home in Boston over the past 10 years, that’s been the norm.

The residential real estate market in Greater Boston has been one of the nation’s most competitive. And when a seller’s market is competitive, the two most important contingencies buyers are forced to drop from an offer are financing and home inspections.

Sure, a transaction without a home inspection makes things smoother all around. But buyers can find themselves in a pickle down the road if their heating system fails or a poorly irrigated retaining wall collapses and they don’t have the means to handle the work. For many buyers, especially first timers, who are putting most if not all of their savings into the down payment, a discovery like this can be devastating.

And what about the unintended consequences? Homebuyers with deeper pockets and less to lose tend to be likelier to risk dropping these contingencies, furthering economic disparity in housing. Essentially, people with less means are finding it impossible to compete.

So what’s the remedy? How would one level the playing field?

State Senator Michael Moore and State Representative Brian Ashe hope that their SD1504 proposal will provide some meaningful mitigation.

Currently, under Mass law (Chap 143), a home inspection remains a right, but the intention to conduct a home inspection must be included as a provision within the initial offer to purchase. A seller can (and often does) refuse to accept an offer that includes a home inspection contingency, usually in favor of another offer that foregoes the buyers’ right to an inspection. (Coincidentally, SD1504 is being discussed in a joint hearing on 6/21/23).

The new proposal would seek to eliminate from the offer to purchase any language for the provision of a home inspection at all. Buyers whose offers were accepted by the seller could simply elect to have a home inspection within a limited timeframe or not. Further, it would be illegal for a buyer to signal their intention to not have a home inspection in order to curry favor with the sellers.

There has been a lot of discussion on both sides of this. The Massachusetts Association of Realtors (of which I am a dues paying member for almost 2 decades) is so far expressing ambivalence on this matter. They believe that buyers and sellers should have the freedom to work out whatever terms are best for them.

We work with buyers and sellers, equally. I can see the obvious benefits for sellers in not having a home inspection. But I can also see the far greater benefits for buyers in having a home inspection.

What happens if it eventually becomes law? It’s hard to disagree that it won’t be a game changer in how we conduct the business of transacting home sales.

I’m just speculating here, but here are five ways I see this law changing our industry:

• A larger percentage of deals will fall apart during the offer stage. This is the natural side effect to adding a relatively important contingency to the equation. In other words, in a way, it would be largely serving its purpose by providing buyers that added level of scrutiny.

• Material disclosures will be more prevalent. Sellers may want to have their homes inspected themselves prior to listing for sale to head off any potential issues later or, minimally, allow them to disclose in preclusion from any home inspector findings that would tip the scale. It’s the probably one of the biggest (if not THE biggest) investments someone can own. Probably a good idea to make sure you know what condition it’s in.

• Agents will work harder! Listing agents will have to be smarter about what and how they’re presenting disclosures. Buyer agents will want to be more aware of any home’s condition before putting an offer together. Both buyer agents and listing agents are going to have to negotiate through home inspection results to keep their deals together: listing agents will want to keep other interested parties in the fold in case things fall completely apart or negotiations become untenable. I know as a listing agent, I can already see myself doing all I can do to keep the 2nd and 3rd place buyers engaged until we’ve signed the P&S and the home inspection contingency has passed. As a buyer agent representing a buyer that may have lost out in a bidding, I’ll want to stay in close contact with the listing agent in case there’s an opening during an inspection negotiation.

• Deals could take a little longer. With more time for negotiations, deals falling apart and properties potentially coming back to market, the average time between an accepted offer and closing will surely increase. Also, many attorneys won’t start working on the P&S in earnest until they know the inspection has been conducted and negotiated. Will it be a significant difference or negligible? Your guess is as good as mine.

• Calling all resources. The ability for a buyer or listing agent to have contractors at the ready to come in for estimates will be an important differentiator. I recently had a buyer arguing that a lead paint abatement would cost $100K for a small two-family. I asked the buyer agent where this estimate came from and she told me it was the buyer’s out-of-state father. We were able to call an expert with whom we’ve worked for ballpark estimate that ranged from $5K to $30K, a far cry from $100K.

In general, I’m all for buyers having this protection built into their purchase. Akin to some of the Lemon Laws enacted in Massachusetts to protect consumers purchasing cars, the SD1504 would give buyers a peace of mind in a process that is already fraught with stress, uncertainty, and anxiety!

By the way, it’s super important to note that a home inspection should not be viewed simply as another opportunity to chisel the price or ask the seller for some unreasonable upgrade! Primarily, it’s educational. If you’re basing your offer on the current condition of a home along with whatever disclosures made from the sellers, you’re really just making sure there wasn’t something unseen and potentially expensive. We agents need to disabuse the idea that a home inspection is just round 2 of price negotiations. I know that if I encounter a buyer like this while I am acting as a listing agent, I’m doing EVERYTHING I can to get another buyer into the mix.

And yes, agents would have to work a little harder to keep the deals together, but I think many of us would find ways to be smarter and more efficient in our brokering practices.

I’ve personally sat in on hundreds of home inspections with an array of home inspectors. I’ve seen some of the best inspectors and some of the worst. I know firsthand how crucial a good inspector can be!

Of course that’s another ball of wax: finding a good home inspector. Perhaps a blog topic for another day.