Real Estate Law

Home Inspections

A home inspection is a normal stage in the home-buying process. Generally, your home sale contract or mortgage company will require an inspection, making it an “inspection contingency.”

This means the sale cannot go through without an inspection, and you have the right to back out of the sale if the inspection fails. Home inspection services by certified home inspectors may include reviewing a home’s electrical systems, fireplaces, air conditioning, septic system, structural components, and gutters to check for potential problems.

An inspection company may have a different home inspection checklist depending on the nature of the property or the sale in question. Some property inspection services, such as radon testing, termite inspection, and water quality, may need to be requested separately. Consult with an experienced real estate attorney if you are unsure what may be appropriate in your circumstances.

Home Inspections Are Not Pass or Fail

You can still buy a home that fails the inspection. Once the inspection is complete, the new home sale contract will waive the inspection contingency, and the sale will proceed. Canceling or continuing with the sale process after reading the inspection is up to the buyer. In rare cases, homeowners might cancel the sale and choose to make repairs themselves before putting the house back on the market.

No law prevents buyers from purchasing homes that failed to pass inspection. However, with significant problems, most buyers will back out to save money on home repairs down the road. Most real estate agents recommend a thorough inspection and written report by a certified home inspector with years of experience. Referrals for residential and commercial property inspections can be obtained from places like the American Society of Home Inspectors (ASHI).

What Happens During the Inspection

A licensed home inspector is hired and scheduled to examine the home you want to buy carefully. They look for any house problems and give the buyer a detailed report of their findings. Sometimes the buyer and seller will be present during the inspection process, but it is more common for just the buyer to walk through the house with the inspector.

In some cases, such as during the COVID-19 pandemic, a professional home inspection may be conducted without the presence of any other party. The buyer can contact the inspector to go over any questions regarding the report.

What Happens After the Inspection

After reviewing the inspection report, your realtor should:

  • Renegotiate the home sale price or request credit in escrow based on major issues found in the inspection;
  • Send the inspection report to the sellers if they hesitate about negotiations;
  • Advise you if the house is still a fair price or might be a “money pit” in the future; and
  • Help you consider the pros and cons of purchasing this house and ask if you want to cancel the sale.

Generally, you can back out of the sale for any significant issue noted on the inspection report and keep your earnest money. If the house is a new build that has a perfect report (which is quite uncommon), you may not have a claim to cancel the sale without losing the earnest money.

You Can Cancel the Sale Over Significant Problems

Most previously-owned properties have some issues. The home inspection contingency clause allows a buyer to cancel the home sale only if a significant problem is revealed.

What qualifies as a significant or substantial problem will depend on the property. Homebuyers should consider the cost of fixing the problems relative to the purchase price. You may be able to have the seller reduce the price or pay closing costs to make up for problems with the house. Both sides must decide how much the repairs will cost and what the home is worth and negotiate escrow credits.

Be Wary of These Costly Problems

Almost every home inspection report will find problems. Even brand-new construction may require repairs to poorly constructed areas or not up to modern code.

Issues like a broken lock can be fixed for a few dollars without much effort. There is no need to cancel the house purchase over small or cosmetic problems. However, some kinds of problems can be costly and dangerous and should raise red flags in the home’s sale:

  • Structural elements: damage to the roofing structure or shingles, faulty foundation problems, unsound wall structure, or termite damage
  • Water problems: no sump pump or sump pit/sump hole, flooding in the basement, old water damage, poor drainage around the foundation, or extensive leaking pipes
  • Plumbing systems: old plumbing or improperly installed DIY plumbing throughout the house
  • Electrical issues: old wiring systems, poorly done DIY wiring, or any wiring that is not up to code
  • Heating and air systems: old HVAC systems, cooling systems or water heaters, poor quality installations, or DIY fixes from previous owners
  • Safety issues: poorly maintained pools or wells, dangerously leaning or poorly maintained trees, obvious code violations, such as a homeowner storing toxic materials in the attic for years, or no fire safety doors installed

Extra Inspections You Should Consider

Other issues may only come up in some types of home inspections. If you are concerned about these specific problems, talk to an inspector about testing for these issues:

  • Asbestos: This can be expensive to remove, dangerous to breathe, and can lead to serious health issues.
  • Lead paint: Lead paints were not banned in residential homes until 1978. Older homes should be tested for lead paint, especially where there is peeling or chipping paint.
  • Pest control: This may be necessary for major mice or animal infestations, bugs, wasps, or termites.
  • Radon: This test typically costs extra but will check for harmful fumes usually found on the bottom floor, basement, or crawl space.

You Can Always Cancel The Sale After an Inspection (But You’ll Lose Earnest Money)

You always have the right to cancel the sale until the closing date, but you may lose your earnest money or become liable to the seller for their losses (e.g., time, opportunity, ideal market conditions). If a seller or agent says you cannot cancel the contract, you need a real estate attorney to look into the matter and defend your options.

The inspection can make your dream home feel full of problems, but your inspector and realtor can guide you when proceeding with the sale. A leaky faucet or minor roofing issues usually aren’t enough to cancel the deal.

Consider having the homeowners buy you a one-year home warranty to safeguard against individual appliance problems.

Home Inspection Problems That Aren’t a Problem

The first time you read the inspection report, you might feel like there is too much to fix. However, cosmetic problems like worn carpeting or peeling wallpaper are often something that would be changed and not a good enough reason to cancel the entire purchase. After both sides have read the inspection report, the seller may offer to repair the problems or negotiate to resolve the issues.

In most cases, it is in the seller’s best interest to negotiate with the buyer or pay for the costs to fix the problems. If the seller becomes aware of any new problems after an inspection, they will be required to disclose the problem to any potential buyers that come later. Other potential buyers could be suspicious after hearing a buyer backed out of the agreement to purchase the home, especially if the home has been on the market for too long.

In a seller’s market, many buyers might skip the inspection altogether or be more willing to accept homes with major issues.

While inspections may not be mandatory, different jurisdictions, such as GeorgiaNew Jersey, and Hawaii, have varying requirements for standards that inspectors must meet while conducting their business. Here are a few examples:

  • In Georgia, the Trade Practices Act of 1994 requires ethical and detailed reporting requirements.
  • New Jersey’s Division of Consumer Affairs has a Home Inspection Advisory Committee to oversee licensed home inspectors.
  • Hawaii’s law, S.B. NO. 2403, establishes a new chapter for home inspector licensing.

An experienced and licensed inspector is usually $300-$800 but will likely save you thousands of dollars in potential damages. Your mortgage company may also require a home inspection before approving a purchase. Because every person’s circumstances are different, an experienced real estate attorney can advise on the best course of action regarding inspections.

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