80% of sellers/buyers not choosing home inspections

According to a survey carried out by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) in the first half of 2018, only 18% of transactions involved home inspections. 

Between April and September 2018, a total of 5,932 home inspections were carried out across Japan. A total of 12,904 inspections were forecast for the year, almost double the number seen in 2017. Still, this amounts to less than 8% of the 169,000 existing home sales on an annual basis.

A survey of real estate agencies found that buyers or sellers elected for home inspections in just 18% of brokerage agreements. For sellers, 16% elected for home inspections, while only 2% of buyers chose this option. In the cases where a home inspection was carried out, 62% ended up going through with the sale.

In April 2018, building inspection guidelines were introduced nationwide that require licensed real estate agencies to include a ‘home inspection’ clause in brokerage agreements with buyers or sellers. This clause indicates (1) whether the real estate company has an affiliated home inspection agent that they have a referral program with, and (2) if a home inspection has been carried out on the property within the past 12 months and the main details of the inspection results. 

On the seller’s side, the seller has the choice of (a) carrying out a building inspection, (b) not carrying out a building inspection but allowing buyers to hire an inspector if they wish to, or (c) not carrying out a building inspection and not allowing buyers to hire an inspector either. The majority of properties we have seen on the sale market fall under (b), although we have seen several cases of (c) where the seller will not let a buyer carry out a building inspection. 

Buyers must be aware that the home inspection process in Japan is nowhere near as thorough as it may be in other countries. If the home is occupied by the seller, the inspector may not be able to see behind heavy furniture or access all rooms. Inspections are based on what the inspector can visibly see without doing anything invasive. Floorboards, wall panels and ceilings cannot be removed, which limits how much of the structure can be accurately assessed. Rather than an inspection report, it should be considered more of a condition report. So far, inspection companies only provide information in Japanese as demand for English services are low.

The inspection company is not obligated to provide any assurance or warranty that the home is free from any defects, and neither is the real estate broker. A property that passed a home inspection is not guaranteed to be free from defects. If there are any hidden defects in a property, the seller may be responsible for a short-period of time if it is indicated in the contract of sale.

As a buyer, you will need to obtain the seller’s permission to conduct a home inspection, and you are responsible for arranging it and paying the inspection fees. If there are several interested buyers, the seller is likely to choose a buyer that does not require a building inspection. Inspections and reports can take several weeks to arrange. In the meantime, the seller may choose to sell the property to another buyer who is not interested in a home inspection. The home inspection must be done prior to signing the contract of sale and the request should be indicated in the purchase offer or expressed to the seller prior to finishing negotiations. 

Source: R.E.port, December 21, 2018.