Home inspections make a comeback in cooling real estate market

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Home inspections, once a standard buyer demand but largely discarded in the crazed days of pandemic, multiple offers and over-asking bids, are making a comeback.

“What was going on over the last couple of years when people had to forgo home inspection was insane,” said Alan Carson, chief executive officer of home inspection firm Carson Dunlop. “Buyers took risks and we saw how some of them suffered as a result.”

Mr. Carson said the changing real estate market provides an opportunity for a return to sanity where, ideally, every home is inspected before a sale is complete.

“Buyers can finally take advantage of the logical and essential services of home inspection,” he said.

Rayo Irani, a real estate agent and team leader at Call Rayo, a brokerage firm, said more buyers are demanding a home inspection because there are fewer offers on the table.

“We are coming back to normal levels,” he said. “Now we have gone back to the regular negotiation times which includes home inspection conditions as part of the offer and this is good for the seller, buyer and even the realtor.”

Leigh Gate, president of the Ontario Association of Home Inspectors, said each province is different in the numbers of home inspections they are seeing but said that Ontario is noticing an increase over the past month.

“We are seeing a rapid change in home inspections, but we are not yet at the pre-pandemic levels and midway into 2020, where we had far more inspections than now,” he said. “Before the pandemic, at least 80 per cent of homes that were sold or purchased would be inspected at some point in the transaction, and that dropped by easily more than half over the past 18 months.”

Sales activity in the real estate market has continued to decline amid rising interest rates. A recent data by the Canadian Real Estate Association shows national home sales were down in June, falling by 5.6 per cent on a month-over-month basis.

The number of newly listed properties was up 4.1 per cent month-over-month. This increase was influenced by a jump in new supply in Montreal, while new listings in the GTA and Greater Vancouver posted small declines, according to the report. The number of transactions in the same month was 23.9 per cent, below the record for the same month last year.

The Bank of Canada recently announced it is raising interest rates by one percentage point in a bid to control rising inflation. According to data from Statistics Canada, the inflation rate in July hit 7.6 per cent, a month after reaching its highest point in nearly 40 years.

Mr. Carson said buyers in a heated market became somewhat panicked by fear of missing out. Those fears have now subsided.

“Buyers are being more cautious and sellers are finding out that their houses are not being snapped up by 10 or 20 interested parties knocking on the door anxiously to buy,” he said. “Instead of becoming an everyday occurrence for home buyers, home inspection became scarce because the market got so hot.”

Mr. Carson said it makes financial sense for home buyers, who are often investing their life savings, to get an inspection. Buyers need to understand what they are getting into by checking the overall technical condition of the house and determining whether the mechanical systems are performing properly.

“Many home buyers do not have a lot of money available for unexpected expenses, especially in that first year of buying a home,” he said. “Home inspection is the first step to look after the home and protect their investments as they move to home ownership.”

Mr. Carson said although there is almost certainly a larger percentage of homes getting inspected, the number of home sales is down so much that they have not seen an overall increase in inspection numbers yet at his inspection firm.

There seems to be two different forces at play – buyers are more able to get inspections, but the number of sales is down dramatically, he said.

Mr. Gate agrees. He said it’s too early to add numbers on the inspection currently being done by home inspectors across the country.

“We still have a way to go,” he said. “We still need to see more homes being inspected as the market is beginning to adjust normally.”

Mr. Irani noted that the return of home inspections is an opportunity to negotiate with the seller if there are are structural defects with the house.

The best time for a home inspection is before a buyer makes an offer or before the house goes on the market, Mr. Carson said. The seller arranges for an inspection and makes the report available to any prospective buyers. That way, all the cards are on the table and it’s a transparent transaction where buyers know what they are getting into and see the condition of the home, he said.

Alternatively, the buyer can make their purchase offer conditional upon the results of an inspection they arrange.

“I would like to see the entire home inspection profession move to a point where every home that comes on the market has a home inspection performed already and the report available for prospective buyers to make a decision,” he said.

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