Why do a Seller’s Inspection?


From last month’s article, How do you select a Home Inspector? , we continue the discussion on “Caveat Emptor” (Buyer Beware).

Beware of What?

1) Buyers typically have less information about the house they are purchasing, while the Seller has more information. In contract theory and economics, Information Asymmetry deals with the study of decisions in transactions where one party in a transaction is in possession of more information than the other. Typically, that imbalance means that the side with more information enjoys an advantage over the other party.

2) Defects in the house may be hidden from the Buyer, and only known to the Seller. Also, Seller may not know all the defects. In the Purchase Contract, this is referred to as “NTMK” (Not to my Knowledge). Otherwise known as “Ignorance is Bliss.” The burden is on the Buyer to “hunt” for the defects.

3) There is an imbalance of information initially, but the Home Inspection uncovers the defects and attempts to “level the playing field.”

4) After closing, the Seller typically will not be responsible for problems the Buyer does not discover.

Is there a better process?

A Home Inspection initiated by the Seller will increase the confidence of the Buyer, reduce the time on the market, and lower the unknown risks faced by the Buyer.

A good analogy is the game of Poker versus Chess. In Poker, cards are hidden from both parties to enable “bluffing” and “guessing” as part of the game. In Chess, all the chess pieces of both parties are on the chess board and there is full transparency of information. A Seller’s Inspection is like playing Chess instead of the current process which is akin to playing Poker.

Unlike Chess, Poker has hidden information (the opponent’s hole cards). Game theorists call chess a game of perfect information and poker a game of imperfect information.


Why play Chess (Seller’s Inspection) instead of Poker (Buyer’s Inspection)?

1) Allows Seller to shop for reasonable costs of repairs for defects to justify a higher price point. This is part of the strategy of “Flipping” a house.

2) Allows Seller to replace broken items often at less cost than negotiated Seller credits.

3) Avoids “11th hour” surprise negotiations with Buyer which may kill the deal. The Buyer will have the Seller’s Inspection Report as well as the Buyer’s Inspection Report. These Reports will have a high probability of all visible defects for the property. This is a strategic way of supplementing the SRPDS (Sellers Real Property Disclosure Statement) and mitigates the “NTMK” position.

4) The purpose is to achieve a balance where both parties have access to complete knowledge of the property. This minimizes the “Information Asymmetry” problem.

What percentage of Home Inspections are Seller’s Inspections?

Based on casual conversations among Home Inspectors, it is 5-10% of Home Inspections. Also, more experienced Realtors would recommend Seller’s Inspections, probably because they have seen the advantages of this unconventional process.

Do you still need a Buyer’s Inspection if the Seller paid for a Seller’s Inspection?

Yes, the Buyer should always select their own Home Inspector to avoid a conflict of interest with the Seller’s Inspector.

Is Life more like Chess or Poker?

From Annie Duke, Professional Poker player, “Decisions in life are more like Poker, where a player makes choices affected by limited information, active competitors, and the whim of luck.

For any questions on this topic, please call Oscar Libed of Inspect Hawaii at 808-728-5707 or send an email to oscar@inspecthawaii.com

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Purchasing/Buying Real Estate with: Solo 401k Real Estate | Real Estate 401k | Individual 401k | Self-Directed Solo 401k

With a self-directed Solo 401k also known as “Solo 401k Real Estate”, the trustee of the self-directed Solo 401k can invest the 401k funds in many types of real estate investments (e.g., homes, commercial buildings, apartment buildings, land, mobile homes, etc.). All of these real-estate asset types may be held inside a solo 401k similar to stocks and mutual funds.

What is more, the Solo 401k rules permit the business owner to partner with his or her solo 401k when investing in real estate.  This type of arrangement is commonly referred to as tenancy-in-common ownership.

The rules also permit for loans to a Solo 401k by a third-party (not the solo 401k owner or certain family members of the solo 401k owner) for investing in real estate. This is knows a debt financing or non-recourse loan.  See definitions below.

The general steps required to make a real estate investment with Solo 401k are:

  1. Determine price range and whether or not your Solo 401k will need to engage in non-recourse financing or participate in a tenancy-in common transaction.
  2. Choose the investment property.
  3. If your Solo 401k will borrow money, find a lender and settle on the terms.
  4. Make an offer to the Seller.
  5. Have a third party (an attorney or Title Company) draw up the real estate purchase documents.
  6. Confirm the third-party understands that your are making the purchase through your Solo 401k and as such the Solo 401k will be listed as the purchaser/buyer.

You as trustee of your Solo 401k will safe keep the following forms and documents in connection with the purchase:

  • copy of the Purchase Contract
  • copy of the Settlement Agreement
  • copy of the Escrow Instructions
  • copy of the preliminary (un-recorded) Deed
  • copy of the loan documents (if your Solo 401k is getting a non-recourse loan)
  • You as trustee of you Solo 401k will sign and forward the documents to the escrow agent and write a check from its checking account for the purchase.

Lastly, the above procedure assumes that you went through a solo 401k Provider to open a solo 401k that allows you as the business owner to  serve as trustee of your own solo 401k investments instead of going through a custodian that has their own procedures and also safe keeps the real estate documents and as a result charges asset holding fees.


Tenancy-in-Common Ownership: allows you to buy real estate with personal funds and Solo 401k funds. Each will own a specific percentage of the property. As a result, the income and expenses associated with the investment will be proportionally shared based on the ownership percentage. This type of arrangement also permits you to invest your Solo 401k with family members such as your spouse or siblings. Again, the key is to adequately reflect each investor’s percentage of ownership on the paperwork and that the expenses and income are proportionally shared by each party to the transaction.

Non-recourse loan: affords your Solo 401k the option to take a loan from a financial institution or an investor for purchasing real estate. If the loan is not paid back by your Solo 401k as promised, the lender may take the Solo 401k-owned property used to secure the debt, but may not take recourse against any other assets of your Solo 401k. Simply put, your Solo 401k-related loan can never affect any assets other than those used to secure the loan.

About Mark Nolan who wrote this post.

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

Cold Calling Lawsuit Against Realtors

A class-action lawsuit is going forward against Coldwell Banker because of cold calling Realtors bothering sellers at home.

As a Realtor, I think this is a good thing.

I don’t like to be bothered by cold sales calls, and I think most people feel the same, so the idea that some Realtors ignore the do not call list and use automated dialers to call up to 300 people per hour never sat well with me.

Personally, I think Brokers should have banned this practice a long time ago, and maybe this lawsuit will help them make some needed changes.

The problem is it actually works, so even though they bother so many people they would actually find new clients, which is why they keep doing it.

Condos Outpace Single-Family Homes in Sales, New Listings

Closed sales activity for single-family homes lags behind the condo market, with single-family properties marking just a 9.8% increase in sales compared to 47.7% jump for condos in November. The median prices for single-family homes and condos tied the previously set record prices at $1,050,000 and $500,000, respectively.

Though single-family homes continue to move into escrow at a quick pace of 11 days, it’s the condo market that set a new record low median days on the market of only nine days. Buyers scooped up condo properties an entire week faster compared to November 2020’s median of 16 days on the market. Meanwhile, around 61% of single-family home sales and 42% of condos sales closed over the asking price in November.

“It’s evident that O‘ahu buyers are entering the market well-prepared and are wasting no time, working with their REALTORS® to get their offers submitted and accepted as soon as possible,” said Shannon Heaven, president, Honolulu Board of REALTORS®. “Additionally, a large portion of sellers are receiving bids above their original list prices, which tells us that we remain in a competitive market despite the expected holiday lull.”
Year-over-year new listings for single-family homes dropped 5.5%, with just 358 new properties entering the market in November. On the other hand, sellers added 639 new condo listings, representing a 13.9% uptick compared to this time last year.
“Sales in both the single-family home and condo markets appear to have leveled off over the past few months. However, we continue to exceed 2020 sales, which dropped due to the initial waves and economic fallout of the COVID-19 pandemic,” added Heaven.

Real Estate Tax Credit

You could be eligible for a very nice tax credit if you own your home and no other Real Estate, and your Gross Income is under $60,000. Many retirees can take advantage of this as they don’t count assets, only income. You might have millions in your retirement account, but as long as you are able to take under $60,000 a year or less you would qualify.

The deadline for the application is the end of September, and you have to apply every year.

For more information see this page and scroll to the Real Property Tax Credit Information and Application links.