Should I bail after a really bad home inspection?
Home Inspection: don’t skimp
Should a bad home inspection doom a real estate transaction? If done right, a bad home inspection may actually be the most important consumer tool available to buyers.
At first this may seem like a strange view but if you look at how the real estate marketplace works you might agree. Let me explain.
Real estate contracts both bind and release
Most real estate transactions are held together by sale agreements written by lawyers for brokers who belong to local MLS systems. These are agreements which are up-to-date and generally reflect some balance between buyers and sellers.
However, real estate sales are not games, like checkers. As a buyer, your goal – like the seller’s – is not some vague notion of fairness. Instead it’s to get the best possible result from a transaction.
In many cases, a sale agreement will include the opportunity for a buyer to have a home inspection within a given period – say 10 days – to disclose any defects with the property.
The problem with such mundane disclosures is that they don’t provide recourse for the buyer if problems are actually found. Instead, such wording simply says you can have an inspection, but there’s no obligation for the seller.
It’s up to you to negotiate what happens after an inspection — if the seller must make repairs or let you end the transaction and get back your deposit.
Overcoming a bad home inspection
As a buyer, you want stronger inspection language.
At this point, it may be suggested that a different clause is in order. For example, the inspection clause might say you have the right to a professional home inspection, and if any damages are found, the seller can either have the repairs made or pay a given amount to resolve any issues, say $3,000.
Is this language better? Yes, but it still leaves some holes. The owner might make repairs with cheap parts. Or the repairs are barely done in a workmanlike manner.
Also, by giving a $3,000 credit at closing, the seller can make home inspection issues go away. Even if the home inspection says repairs worth $8,000 are needed. The new language doesn’t give the buyer a way out of the transaction without losing a deposit.
Satisfaction and a bad home inspection
This time, the inspection clause says the buyer is entitled to a home inspection, which must be “satisfactory” to the purchaser. If the buyer is not satisfied, the deal is off and the purchaser’s deposit must be returned in full.
In this situation, says Successful Real Estate Negotiation, the “contract will be final only when the buyer says the inspection is satisfactory.
“But what standards are imposed on the purchaser? What standards can be imposed? When the issue of satisfaction is raised, who other than the buyer in this case can say what “satisfaction” means?
“As long as the evaluation seems within the realm of logic and good sense — what a “reasonable man” might conclude — courts generally will not interfere.”
In the first two tries at home inspection language, the clauses favored the seller. While the third attempt tilts toward the buyer. Is this unfair? Says who?
It may well be that the home is perfectly fine and that’s great. It may also be that when defects are found the seller will agree to a discount sufficient to “satisfy” the buyer. Or, in some cases, it may be that the buyer will walk away from the transaction.
A bad home inspection turned good
A properly written home inspection clause can allow the buyer to effectively re-open the negotiating process. How will the seller react? That likely depends on the market.
In a strong seller’s market, the owner may not be in the mood to negotiate. An offer with a tough home inspection contingency might be ignored. But — in markets which are balanced or stalled — the reaction may be different. The seller may be very willing to bargain.
First, the seller is likely obligated to disclose the (now known) defects to the next purchaser.
Second, the next purchase offer may not be as good.
Third, there’s no rule which says there must be a “next” purchase offer anytime soon. Or at all.
Fourth, unless the property is a tear-down, somebody is going to have to repair the property. The real argument is whether it will be the buyer or the seller.
The bottom line
A bad home inspection, whatever “bad” might mean, should not be an automatic turn-off. It may be that the seller is willing to make proper repairs or provide a cash credit at closing to cover damages.
Such concessions can amount to thousands of dollars that buyer’s don’t have to spend – and should not overlook.
Do not write home inspection language yourself — this is a job for professionals. For details regarding home inspection contract clauses be sure to speak with brokers or a local real estate attorney.
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Today’s mortgage rates still make buying a (properly inspected home) a great investment. Compare offers from mortgage lenders today.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.