When Inspection Fails
- February 29th, 2012
- in Yachting
When a Home Fails Inspection
My last article explored the different types of reports that are typically generated in a home sale—the termite inspection, structural survey, land survey, and title search reports. Home inspections are very useful as they give the prospective buyer actual information on the condition of the property. Sellers, on the other hand should be aware that defects may arise in the course of home inspections and should think about earmarking funds for home inspection negotiations.
It’s difficult to list the type of defects that can arise. These can range from property encroachments, to leaky roofs, to the wrong type of AC system installed, to water oozing and leaching from the walls, to tiles and concrete finishes lifting, cracking or becoming loose, to obsolete easements on title, to faulty wiring or the property not yet having been subdivided.
For clarity, referring to a home failing inspection is an oversimplification of the process. Home inspection reports merely highlight any features that don’t meet industry standards or state whether or not the property has good and marketable—or mortgageable—title or boundaries. It’s up to the buyer to decide whether any defects highlighted amount to a pass or fail in their eyes.
When the defect relates to physical aspects of the home, inspectors are not always able to identify the cause of defect. To do so, more invasive investigation might be needed, such as tearing down or opening holes in one or more walls, ceilings or floors.
We have seen an increasing number of “as-is” sales, as parties broker discounted sale prices to get properties moving. Buyers need to beware of executing “as-is” contracts prior to having home inspections conducted. If the home “fails” an inspection, this will not entitle the buyer to cancel the purchase, negotiate for a price break or oblige the seller to fix the problems.
As the previous sentence indicates there are three main options for dealing with defects arising from home inspections. A standard contract will entitle the buyer to require the seller to fix the problem. The good news is that most problems discovered in a home inspection can be fixed, though some are more expensive than others; e.g. replacing a faulty faucet is less expensive than roof repairs. If the Seller doesn’t rectify the problem, the buyer will have the right to terminate the contract. If the reason behind the seller’s failure to fix is the high cost and the buyer doesn’t want to lose the property, they can negotiate a middle ground.
In one transaction I’ve dealt with, the buyer had negotiated a heavily discounted price then discovered that the roof needed repairing. The sellers were understandably not willing to agree to any further reduction or take on substantial cost, while the purchasers sensibly did not want to take on the entire risk of fixing the roof as the precise cost of repair was not known. The parties agreed that the buyers would be responsible for undertaking the repair the roof but their costs would be capped to an agreed figure derived from an estimate obtained by the seller. The seller would then be responsible for any additional costs, provided that the buyer commenced the repair work within an agreed time frame, and a portion of the closing proceeds were escrowed to secure the arrangement.
If all else fails, the parties may simply have to walk away from the sale. If you’re uncomfortable with assuming the risk, you should walk away as a buyer. Likewise a Seller may find another buyer who is in a position to purchase the home on mutually agreeable terms and conditions. The most important thing to remember is to ensure home inspection reports are completed early in the process, within the contractually allotted periods, or in the case of an as-is sale, prior to execution of the contract.