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Should I Back Out if the Home Inspection Comes Back Bad?

A bad home inspection does not mean you should immediately back out of buying the house:

  • You should not overlook if the buyer is willing to make repairs or offer a cash credit at closing for damages. These credits can add up to thousands of dollars that buyers won’t have to spend.
  • If the home inspection was properly written, it can allow for the buyer to renegotiate in the case of a bad inspection.
  • Be sure to speak with a broker or real estate attorney for the details on home inspection contract clauses.

Don’t Skip the Home Inspection

While a bad home inspection may seem like the end of the world. It can actually be an important tool for buyers. If you look at the way the local market is working, you can see how it would benefit you. Housing prices have climbed in the last two years, and you don’t want to get stuck paying for a home that has major issues.

Real Estate Contracts Can Bind and Release

Sales agreements are written by lawyers for brokers belonging to local MLS systems. Sale agreements usually hold some balance between buyers and sellers.

As a buyer, your goal is not the same as the seller. Your goal is to get the best possible deal from the transaction, a great home at a great price. Many sale agreements will include the timeframe that a buyer can have a home inspection- let’s say 15 days- to disclose any issues with the home.

A sale agreement can usually include a period that the home inspection can occur in order to find any potential issues. The problem with disclosures is they don’t have any recourse if problems are actually found. The wording will usually say you can get the inspection, but the seller isn’t obligated to do anything about the issues. It would be up to you to negotiate what will happen after the inspection.

After the inspection, it’s your responsibility to negotiate. You need to decide if the seller needs to make the repairs or if you want to back out and get your deposit back.

Getting Past a Bad Home Inspection

When you are the buyer, you want stronger inspection language to best protect you. Let’s say the inspection clause says you can get the inspection and for any found damages the seller has two options. They can fix the repairs or pay a given amount to fix them, let’s say $3,000.

Is this better for the buyer? Not exactly. The seller can fix the repairs with cheap material or the work can be done by someone who doesn’t know what they are doing.

By giving a $3,000 credit at closing, the seller can make the inspection issues go away. Even if the repairs are more than $3,000, the new language did not give the buyer protection to back out of the transaction without losing a deposit.

How to Get a Good Outcome From a Bad Inspection

What happens if the inspection clause says the buyer is entitled to a home inspection that has to be “satisfactory” to the purchaser? If the buyer is not satisfied, the deal would be off and the deposit must be returned to the buyer. In this situation, the contract is only complete when the buyer says the inspection is satisfactory.

Are any standards put on the buyer? Can any standards be enforced on the buyer? In this case, other than the buyer, who can say what “satisfaction” means? As long as the evaluation is within reason, courts will not generally get involved.

In the first two examples of inspection language, the clauses are in favor of the seller. The last attempt leans more in favor of the buyer. Some people think this is unfair.

A home can be in perfect condition and that is fine. A seller can also agree to a discount to “satisfy” the buyer. In other cases, the buyer can walk away from the transaction. These are all different types of language that can be found in home inspection clauses and for the buyer, is a great outcome if the inspection comes back bad.

When a Bad Inspection Turns Out Good

When a home inspection clause is written properly, it will allow the buyer to essentially re-open the negotiation up. How the seller takes this news can vary. In a seller’s market, the seller may not want to negotiate. An offer that has a tough home inspection contingency may be ignored. In markets that are more balanced, they may be more willing to negotiate.

Once there is a home inspection done, the seller would be obligated to disclose the issues to the next purchaser. The next purchase offer might not be as good due to the issues brought up in the inspection.

There is also no rule that says there has to be another purchase offer anytime in the future. Unless the new buyer is planning on tearing down the property, someone will have to make the repairs. This will open up the question of who will pay for them.

What This All Means

There are differing opinions on what a bad inspection may mean. It should not automatically turn you away from a home purchase. A seller may be willing to make the necessary repairs or offer a cash credit at closing that will cover the repairs.

These credits can amount to thousands of dollars.

It is very important that you do not write the home inspection language yourself. Get a professional to write it so the language will protect you. If you are looking for some more advice, feel free to talk with a broker or a local real estate attorney.

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