Q: Which party usually pays for the termite inspection fee and septic tank inspection fee? My escrow was opened on a short-sale listing owned by Chase Bank. But there is no provision in escrow stating who will pay for these things. I asked my agent (who is also the listing agent), and he doesn’t know, but my Wells Fargo mortgage consultant says the other party should pay for it. –Sue D.
A: In a real estate purchase/sale transaction, there are a number of fees other than the sale price that must be paid to get the deal done; these are what industry insiders call closing costs. Most people think of closing costs as the buyer’s mortgage origination fee or loan documentation fee, or maybe the appraisal costs. But there are a number of other services that must take place for the transaction to move forward, including inspections, and someone has to pay for them.
When trying to figure out which party (buyer or seller) pays for which of these services, here are a few:
1. Local standard practices. Most local areas have standard practices for who pays which fees, and these vary widely, even between neighboring areas. For example, in my neck of the woods, it’s very common for:
- the buyer to pay all escrow and title charges;
- the seller to pay the county transfer taxes; and
- buyer and seller to split the city transfer taxes, 50/50.
However, just down the road, in a neighboring county, buyers and sellers split escrow and title fees, sellers pay the county tax, and cities don’t even levy a transfer tax at all! Often, local standard practices will be relied upon to determine who pays which fees. In my experience, it’s common for local practices to require buyers to pay for their own inspections; however, I have also done transactions in areas where the inspections that are required by city or county governments are paid for by the seller.
I don’t know whether your septic tank inspection is a government-required inspection, or what your local customary practices are in this regard, but an experienced, local agent should be able to advise you on what is standard in your area; if your agent seems not to know, you may want to contact his or her supervising broker.
2. Your contract and short-sale specifics. Every real estate sale contract I’ve ever seen has a section that expressly allocates these standard closing costs between the buyer and the seller — even short-sale contracts. And, yes, most often, the contract will mirror the local practices for allocating these costs. With that said, everything in a real estate transaction is negotiable, so it is certainly possible for a buyer and seller to agree to some allocation of costs that is different than the customary local standards. The authority on the matter of who pays which costs, ultimately, is your contract (including any short-sale addenda that were added to the original contract by the seller’s bank, Chase).
Accordingly, I’m not sure why there seems to be so much confusion on the part of your professionals about who should be paying which fees. One possibility that comes to mind is that since you and the seller shared an agent, the closing-cost allocation provision(s) regarding these particular inspections might have been erroneously omitted from the contract entirely.
At this stage of the game, the agent might not want to draw attention to this omission. And, if I had to make an educated guess, your mortgage pro is assuming that the seller pays, either (a) because that’s the local custom, or (b) because that’s what’s stated in your contract.
In any event, look to your contract for the final word on who pays these fees. Again, I have almost always seen the cost of the termite inspection allocated to the buyer, while other inspections are also usually (but not always) the responsibility of the buyer — with the exception of some that the local government requires.
3. Your own best interests. Here’s a reality check: Ultimately, these particular inspections are for your protection, and the information they produce will be to your advantage. If, for whatever reason, they are not expressly allocated in your contract, and you’re truly committed to this house, consider obtaining them at your own cost.
When you pay for an inspection, you get to choose your own inspector and, in some areas, that inspector owes you a greater legal duty to do his job competently than he would if the seller were paying him.
So, don’t skimp, especially not on your inspections. If your contract has already been approved by the bank, you may have a limited time frame to get them done before your inspection contingencies run out and you’re forced to decide whether or not to move forward with the transaction (i.e., whether or not to allow your deposit to become nonrefundable).
The very worst-case scenario would be to let the timeline run and find out there were issues when it’s too late to back out without losing your earnest money.
If there is no contract provision that expressly allocates these costs, and you really care about the property, my advice is to pay for them, pick your own inspectors and keep the transaction moving forward.