[Selling Vacant Houses] The Truth About 'Yes/No' for Building Condition Survey Mediation - Practices and Challenges Regarding Brokerage Contracts - | mediate

Good morning.

This is Nakagawa, who laughed so hard I spat out my drink while watching the Amazon Prime original show 'Golden Combi Season 2'.

It is a show where comedians pair up with people they don't usually work with to perform improvised skits based on given prompts. It is a very high-intensity comedy show that comedians who lack skill would dread.

The one who shows his strength there is the genius eccentric, Shigezumi Kawakita.
He is an incredible comedian who lives his life in a way that he never breaks character in front of the camera. He is currently on such a roll that he is a man with as much pull as Sorashi or Kuruma Takahira.

In the business world, people often admire the idea of 'having the best partner,' but when you see overwhelming 'individuality,' you realize that everything else is powerless.

Six years ago, when I was a graduate student, a junior who loved comedy more than I did said, 'I think the duo Vacuum Jessica is going to make it big,' when they were still virtually unknown. However, since then, Vacuum Jessica has become an M-1 finalist for five consecutive years and is the top favorite to win this year.

I will post a link to the brain behind it, Shigezumi Kawakita.

I started on note in July 2024 and have been posting articles every Saturday. If you are building a house or are interested in architecture or real estate, please feel free to like, follow, and comment, as it would be a great encouragement and I would be very happy.

Please see this article for my self-introduction👇️

The 'Small Line' of Building Condition Survey Mediation

In real estate sales, one of the first documents a seller faces is thebrokerage contract. Within it, there is an item written in a modest space of just a few lines.'Presence or absence of mediation for a person to conduct a building condition survey' is the column.

A building condition survey (not to be confused with a home inspection), which investigates the safety and deterioration status of a building, is an important mechanism for increasing peace of mind and transparency in the transaction of existing homes.

However, even now, several years after the system was established, it is difficult to say that the understanding of 'mediation' has fully permeated the field of practice, and there are not a few cases of incorrect operation such as'It is enough to just explain it' or 'It is enough to just put 'No' in the document'. Also, from the seller's psychological perspective, there are cases where they do not actively desire mediation due to the anxiety that'If I conduct a survey, bad parts will be found and I will be pressured to lower the price'.

With the 2018 amendment to the Building Lots and Buildings Transaction Business Act (hereinafter referred to as the Real Estate Brokerage Act), it became mandatory to describe and explain building condition surveys in three situations: brokerage contracts, important matter explanation documents, and Article 37 documents. Furthermore, in April 2024, the Ordinance for Enforcement of the Real Estate Brokerage Act and the 'Thinking on the Interpretation and Operation of the Real Estate Brokerage Act' were revised, and it was explicitly stated in the standard brokerage contract terms that 'if mediation is 'No', the reason must be stated'.

At first glance, it may look like a small amendment, but this operation of 'mediation' has a decisive meaning in revitalizing the distribution of existing homes and preparing the infrastructure for both sellers and buyers to engage in transactions with peace of mind.

In this article, we will organize as comprehensively as possible the background of the system regarding building condition inspection referrals, the history of legal amendments, the correct definition of 'referral,' the reasons for 'No' referrals and how to document them, common practical Q&A, and the challenges and future directions perceived in the field.

Chapter 1: Positioning of Building Condition Inspections and Brokerage Contracts

1-1 What is a Building Condition Inspection?

A building condition inspection is defined as an inspection conducted through visual observation and measurement to determine the presence of deterioration or defects, such as cracks or water leaks, in specific parts of an existing house, including the foundation and exterior walls. It is not a system that guarantees the absence of defects; rather, its purpose is to establish an environment where transactions can be conducted with peace of mind by identifying deterioration phenomena at the time of inspection and providing information regarding the quality of the house.

The inspection is carried out by a licensed architect (existing home condition inspection technician) who has completed the government-registered training course for existing home condition inspection technicians, and they perform the inspection based on the standards for existing home condition inspection methods. The scope covers parts essential to the building's structural integrity (foundation, base, columns, beams, etc.) and parts that prevent water intrusion (exterior walls, roof, etc.), and in principle, it is a visual and non-destructive inspection.

The inspection time depends on the size of the house, but it is generally considered to be about 1 to 3 hours, and the cost is estimated to be from around 60,000 yen for standard inspection content. While the actual cost varies depending on the structure, size, and presence of options, for a typical wooden detached house, a market price of around 60,000 to 100,000 yen is often cited.

Regarding the expiration date, to be treated as a building condition inspection result subject to the explanation of important matters, it is considered valid for within 1 year for wooden detached houses and within 2 years for reinforced concrete condominiums, etc., with the revision in April 2024 extending the period for condominiums to 2 years.

1-2 The 'Building Condition Inspection Referral' Section in the Brokerage Contract

Article 34-2, Paragraph 1 of the Real Estate Brokerage Act stipulates the items that must be included in the 'brokerage contract document' delivered when concluding a brokerage contract for sale or exchange. Due to the 2018 amendment, one of the items added was 'matters concerning the referral of a person to conduct a building condition inspection.'

The standard brokerage contract terms also contain similar provisions, and in the case of a brokerage contract for an existing home, a section for 'presence or absence of a referral for a person to conduct a building condition inspection' is included in the brokerage contract. In practice, one selects 'Yes' or 'No' using a checkbox, and in the case of 'No,' it has become required to specifically state the reason since April 2024.

This line is not something that should be filled out merely as a formality. In the sale of an existing home, it is the starting point for the seller and buyer to make the important decision of whether or not to conduct an inspection, and it is closely linked to the subsequent explanation of important matters and the confirmation items in the Article 37 document.

1-3 Relationship between Building Condition Inspection, Explanation of Important Matters, and Article 37 Document

In the 2018 amendment, building condition inspections were positioned not only in the brokerage agreement document but also within the flow of transactions in three stages. In the commentary by the Ministry of Land, Infrastructure, Transport and Tourism, the following three points are organized as obligations for real estate agents.

The structure is such that the agreement regarding mediation at the time of the brokerage contract serves as the starting point, leading to the subsequent implementation of the inspection, explanation of results, and confirmation by the parties. Therefore, it is essential for real estate companies to design not only the mechanical checking of 'Yes' or 'No' in the brokerage agreement, but also the content of explanations and proposals leading up to that point, as well as follow-up after the inspection, as a series of processes.

Chapter 2: 2018 and 2024 Real Estate Brokerage Act Amendments and Changes in Operation

2-1 Background and Purpose of the 2018 Amendment

The Real Estate Brokerage Act amendment enforced in April 2018 is positioned as part of a series of policies aimed at promoting the distribution of existing housing. From the high economic growth period through the bubble era, Japanese housing policy emphasized the supply of new construction, but as a result, the increase in vacant houses and the low volume of existing housing distribution became issues. In the Basic Plan for Housing Life as well, the revitalization of the existing housing market is positioned as one of the central issues of housing policy.

Against this backdrop, the promotion of building condition inspections was sought in order to visualize the quality of existing housing and create an environment where transactions can be conducted with peace of mind. The three obligations introduced in the 2018 amendment (statement in the brokerage agreement document, explanation of important matters, and statement in the Article 37 document) can be said to be the framework for sharing information regarding the condition of existing housing at each stage of the transaction.

2-2 Key Points of the 2024 Amendment: The Significance of Requiring Reasons for 'No Mediation'

With the ministerial ordinance amendment in January 2024 and the revision of the 'Interpretation and Thinking on the Real Estate Brokerage Act,' operations regarding building condition inspections were also adjusted. Of particular note is the review of the standard brokerage agreement clauses. In the Ministry of Land, Infrastructure, Transport and Tourism's interpretation and thinking, it is organized that when 'No Mediation' is selected in the standard brokerage agreement for existing housing, the reason must be stated. Specific examples include the following:

• Because the seller does not wish for mediation of a building condition inspection
• Because consent for the implementation of a building condition inspection cannot be obtained from the owner
• Because a building condition inspection has already been conducted

Furthermore, in the same interpretation, it is stated that it is desirable for real estate agents to provide explanations regarding building condition inspections so that clients can conduct transactions with an understanding of them.

This 'obligation to state reasons' is not merely for formalizing the document, but can be interpreted as a message to reform operational practices such as 'uniformly opting for no mediation' or 'not providing sufficient explanations in the first place' in practice. Commentary articles by Housing Anshin Hosho and experts also evaluate the April 2024 amendment as the first step toward promoting the use of building condition inspections.

2-3 Implementation Status and Degree of Institutional Establishment

Looking at data from the Ministry of Land, Infrastructure, Transport and Tourism and private surveys, the inspection implementation rate has steadily increased compared to before the system was introduced. For example, the implementation rate of building condition inspections for detached houses was 15.3% for sellers and 7.2% for buyers in a 2016 survey, whereas in 2021, it was reported to have reached 44.6% for sellers, 30.6% for buyers, and 37.5% overall.

On the other hand, in a survey of existing housing condition inspection technicians, it was shown that as of fiscal year 2018, the number of existing housing condition inspections remained at approximately 4% of the number of existing housing transactions, and businesses with no inspection track record accounted for about 80%.

In other words, although the framework as a system is in place and it is gradually being utilized, there is a large difference in the attitude toward the initiative depending on the region and the business operator, and it is difficult to say that building condition inspections have established themselves as a 'natural prerequisite' yet. To bridge this gap, the operation of mediation in brokerage agreements becomes a key factor.

Chapter 3: What is 'Mediation'? - The Boundary Between Explanation and Arrangement

3-1 Legal and Practical Definition of 'Mediation'

While the term 'mediation' is used in daily life to mean 'introducing' or 'acting as an intermediary,' the mediation of building condition inspections under the Real Estate Brokerage Act requires more specific content.

In a legal consultation article by the All Japan Real Estate Federation, it is explained that:

is what it means.

Furthermore, the Ministry of Land, Infrastructure, Transport and Tourism's interpretation and operational guidelines, as well as their Q&A on building condition inspections, state that mere provision of information is insufficient; it is required to make arrangements so that specific interactions occur between the client and the inspector.

In other words, 'mediation' can be organized as a concept that includes the following series of processes:

• Explaining the overview, merits, and demerits of the building condition inspection system
• Confirming the wishes of the seller/buyer, and if there is an expression of intent to 'conduct an inspection,' providing information on candidates for the inspector
• If the seller or others select an inspector, making arrangements for specific interactions such as obtaining cost estimates or scheduling
• Acting as a bridge until the application for and implementation of the inspection

It is important to note that simply handing out a pamphlet or introducing a URL for an internet site is not evaluated as 'Mediation: Yes'.

3-2 Scope of Mediation Obligation: Is it 'Mandatory to Mediate'?

The implementation of a building condition inspection is currentlynot a legal obligation. The Ministry of Land, Infrastructure, Transport and Tourism Q&A also clearly states that it is not mandatory to conduct a building condition inspection when selling existing homes.

What is imposed on real estate brokers is the obligation to state the 'presence or absence of mediation for a person to conduct a building condition inspection' in writing at the time of the brokerage contract and to explain it to the client. Mediation itself does not need to be performed if the client does not wish for it. However, even in that case, after the 2024 revision, it is required to state the reason for 'Mediation: No' in the brokerage contract document.

The important thing is not to confuse the 'obligation to mediate' with the 'obligation to explain.' The structure is that explanation is mandatory, after which you confirm whether the client wishes for it, and if they do, you perform the specific arrangements.

3-3 'Explained' Does Not Mean 'Mediated'

A point that requires special attention in practice is the operation of 'treating it as mediated because an explanation about the building condition inspection was provided.' Practical guides for real estate companies repeatedly point out that providing information or explanations alone does not constitute 'mediation'.

Explanation is merely a prerequisite, and it is only evaluated as 'Mediation: Yes' when the client expresses a desire to 'actually conduct an inspection' and you arrange for specific interactions with an inspector. Since you take responsibility for specific arrangements once you check 'Yes' on the brokerage contract, internal workflows and building relationships with partner inspection companies are also important.

Chapter 4: Psychology of Sellers and Buyers

4-1 Feelings of the Seller: Anxiety about being evaluated and the image that 'it will become harder to sell at a high price'

The most typical reason sellers hesitate to conduct a building condition survey is the anxiety that “defects might be found and used as leverage to lower the price.” Other questions raised include, “Since the building is old, wouldn't a survey actually make a worse impression?” and “Is there any benefit that justifies the cost?”

Even in the Ministry of Land, Infrastructure, Transport and Tourism's survey on reasons for not conducting building condition surveys, “I wanted to sell quickly” and “I wanted to avoid the cost burden” were cited as top reasons, indicating that there are psychological and economic hurdles for sellers.

However, building condition surveys also offer the following benefits to sellers:
• By objectively showing the condition of the building at the time of the survey, it is possible to mitigate trouble when unexpected defects are discovered after handover.• Even if a special clause is set to waive liability for contract non-conformity,
one cannot be exempted from liability for facts that were known but not disclosed, so grasping the situation in advance leads to risk management.• It becomes easier to set a price commensurate with the condition and to judge the necessity of repairs.

While the concern that “it won't sell for a high price” contains a grain of truth, in reality, there is also the aspect that “it allows for setting appropriate prices and conditions based on the condition” and “it reduces transaction costs as a result by preventing trouble.” It is necessary to evaluate not just the short-term price, but the overall pros and cons, including time and peace of mind.

4-2 The Buyer's Perspective: Invisible Anxiety and Expectations of Experts

For buyers, purchasing an existing home is a battle against “the invisible anxiety that comes with it being used.” Even in the Ministry of Land, Infrastructure, Transport and Tourism's Q&A, it is stated that while “not knowing the condition of the house” is a source of anxiety in used home transactions, conducting a building condition survey allows for a transaction with peace of mind after grasping the situation, and can suppress the occurrence of trouble.

Buyer psychology includes the following:
• Wanting to avoid major defects such as water leaks or structural problems being discovered later.
• Even when purchasing with the premise of remodeling or renovation, wanting to have a guideline for “how much repair costs are likely to be.”• Wanting to
confirm the condition of the building from a third-party perspective rather than just the seller's self-declaration.

While building condition surveys provide a certain answer to such anxieties, on the other hand, since survey reports are composed of technical terms and concise comments, supplementary explanations by building experts are also required regarding how to interpret the results.

Chapter 5 Reasons and Reality of 'No' Mediation, and Two Challenges

5-1 Typical Reasons and How to Write 'No' Mediation

Since April 2024, in contracts based on the standard brokerage contract clauses, when an existing home is the subject property but 'no mediation' is selected, it is required to state the reason in the brokerage contract document.

As mentioned above, the Ministry of Land, Infrastructure, Transport and Tourism's interpretation and operational thinking suggest the following as examples of reasons (the gist is summarized below):
• The seller does not wish for mediation of a building condition survey.
• Consent for conducting a building condition survey has not been obtained from the owner.
• A building condition survey has already been conducted, and no new mediation is required.

In practice, rather than just copying these reasons onto paper, it is considered desirable to use expressions that reflect individual circumstances, such as “because the seller requested not to conduct a building condition survey.” Also, for real estate companies, it leads to risk management to carefully listen to and record not only vague reasons like “I'm busy” or “I don't think it's necessary,” but also the background, such as cost-related circumstances or plans for a separate survey.

5-2 Are They Actually Mediating? - Data and Field Sense

Even several years after the introduction of the system, not all real estate companies are actively mediating. The Ministry of Land, Infrastructure, Transport and Tourism's questionnaire survey shows that about 80% of existing home condition survey technicians are businesses with no survey track record, and that the average ratio of inspection agency mediation cases divided by the number of sales transactions remains in the single digits.

On the other hand, recent surveys have confirmed a certain level of penetration, such as the implementation rate of building condition surveys for detached house sellers exceeding 40%. There are also reports from private businesses that the number of building condition surveys conducted increased by 1.5 times year-on-year following the revision of the brokerage contract clauses in April 2024, suggesting that the implementation rate is further increasing with the system review as a catalyst.

Thus, from statistical data, a picture emerges that “while there is an increasing trend overall, the differences between businesses and regions are large.” In my own practical experience, there is a large difference in internal systems and the number of cases handled between companies that actively mediate building condition surveys and those that stop at formal explanations.

5-3 Challenge 1: System Design That Relies Excessively on the Thinking and Actions of Real Estate Companies

The implementation of building condition surveys and the operation of mediation currently depend heavily on the stance of real estate companies. Although the system leaves it to the choice of the seller and buyer, the quality of information provision and proposals that form the premise of that choice is greatly influenced by the explanatory ability of the real estate agent.

Companies that can explain the benefits and risks of building condition inspections in a balanced manner and provide concrete prospects for the transaction flow and costs if implemented make it easier for both sellers and buyers to consider them positively. Conversely, if the explanation reveals an attitude of 'it doesn't matter whether you do it or not' or 'we don't recommend it because it costs money and time', the motivation for sellers and buyers to intentionally choose an inspection will be weakened.

In this sense, it can be said that the building condition inspection system, while existing as a legal framework, is a system whose actual effectiveness is largely entrusted to the expertise and ethics of real estate agents. This is both a weakness in the system design and an important point where the role of real estate companies as professionals is called into question.

5-4 Challenge 2: Misconception that 'You Can't Sell for a High Price if You Conduct a Building Condition Inspection'

Another major challenge is the perception that 'you won't be able to sell for a high price if you conduct a building condition inspection' or that 'finding bad points will be a negative factor.'

Explanations from the Ministry of Land, Infrastructure, Transport and Tourism and reports from real estate practitioners point out that building condition inspections actually have the effect of shortening the time to closing and that transaction costs can be reduced as a result by decreasing post-handover troubles.

If deterioration phenomena or the like are revealed as a result of a building condition inspection, it is certainly possible that this could lead to price reduction negotiations or repair negotiations. However, that information is likely to surface at some point regardless of whether an inspection is conducted or not. Rather, by grasping it in advance, the seller can proceed with the transaction with options, such as performing repairs in a planned manner or conducting negotiations based on the premise of reflecting it in the price.

If you evaluate 'whether it can be sold for a high price' not just by the single-year price, but by the total cost including the period until sale, post-handover trouble response costs, and psychological burden, a building condition inspection can actually be a rational option for the seller. To that end, real estate companies need to provide explanations that correct the simplistic image that 'an inspection is a negative'.

Chapter 6: Practical Strategies for Better Operation and Future Direction

6-1 Stance That Real Estate Companies Should Take

Regarding the referral of building condition inspections, the stance that real estate companies should take is clear. It is to correctly understand the purpose of the system, and as a professional supporting the decision-making of sellers and buyers, to carefully provide necessary information and, if desired, to smoothly bridge them with appropriate inspection practitioners.

Specifically, it is desirable to share at least the following points within the company and establish a system.

6-2 Points That Sellers and Buyers Should Keep in Mind

For sellers, those considering building a home, and those considering purchasing an existing home, it is important to know the basic points regarding building condition inspection referrals.

For sellers, it is worth considering as a means to objectively confirm the condition of their property and avoid future troubles. For buyers, it becomes an important source of information to reduce anxiety associated with large purchases and to plan future repair and funding plans.

The inspection cost is around several tens of thousands to over one hundred thousand yen for a typical detached house, and considering the amount of information and peace of mind obtained in return, it is by no means excessive.

6-3 Toward the Maturation of the Existing Home Market

In Western countries, there are many markets where inspections are almost a prerequisite for used home transactions. In Japan as well, several years have passed since the introduction of the building condition inspection system, and improvements in implementation rates and revisions to laws and guidelines have been accumulated.

If building condition inspections become the standard for existing home transactions in the future, pricing will likely evolve based on actual condition rather than just the age of the building, which is expected to contribute to a shift toward a stock-based society. In that process, it will be necessary for real estate companies, architectural firms, and existing home inspection technicians to collaborate and build an ecosystem that appropriately communicates the value of buildings.

What did you think?

The line regarding mediation for building condition inspections is just a small space in a brokerage contract. However, behind that one line lies the flow of policy aimed at a society that values and continues to use existing homes, the anxieties and expectations of both sellers and buyers, and the expertise and responsibilities of real estate companies, architects, and existing home inspection technicians all layered together.

The framework of the system was established by the 2018 amendment, and the 2024 amendment began requiring the reason for 'No' mediation to be stated. From here on, the question is how to improve on-site operations while making the most of these laws and guidelines.

For sellers, it means having the courage to face the condition of their own building. For buyers, it means having the perspective to view a building condition inspection not as an 'additional cost,' but as 'an investment to buy peace of mind'. And for real estate companies and architectural firms, it is required to position building condition inspections not merely as a procedure, but as an important tool for correctly conveying the value of buildings and living.

When faced with the 'Yes/No' mediation checkbox on a brokerage contract, it is our duty as professionals to fully explain and propose options so that everyone involved in the transaction can correctly understand the meaning behind it and make an informed decision. I believe that is the responsibility of those who love buildings and love real estate.

Every Saturday, I update this blog with the realities of the real estate industry and questions about building homes. If you love architecture and real estate as much as I do, I would be very encouraged and happy if you would feel free to like, follow, and comment. Please let me know in the comments about your ideal home or themes for articles you would like to read!!

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