Real Estate Law

What You Need to Know About Your Home Inspection

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 (and keep your earnest money!) if the inspection fails.

Home Inspections Are Not Pass or Fail

Keep in mind: 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 the sale or continuing with the sale process after reading the inspection is up to the buyer. In rare cases, the homeowners might cancel the sale and choose to make repairs themselves before putting the house back on the market.

No laws say you cannot buy a home with a bad inspection. Typically the mortgage company will not loan the money, or the buyer will choose to back out to save money on home repairs down the road. Only you can choose what is right for you.

What Happens During The Inspection

A licensed home inspector is hired and scheduled to carefully examine the home you want to buy. Their job is to look for any house problems and give the home buyer a detailed report of their findings. Sometimes the buyer and seller will both attend this session, but it is more common for just the buyer to walk through the house with the inspector.

In some circumstances, such as during the COVID-19 pandemic, the inspector may complete the walk through alone. Only the buyer can attend afterward to talk through the report.

What Happens After The Inspection

After reviewing the inspection report, your realtor should:

  • Renegotiate the home sale price 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
  • Help you consider the pros and cons of this house and ask if you want to cancel the sale

Generally, you can back out of the sale for any "significant" reason 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 issues. The home inspection contingency clause allows a buyer to cancel the home sale only if there is a "significant or substantial" problem revealed.

What qualifies as a significant or substantial problem will vary depending on the property. Buyers should consider the cost of the repair in relation to the home's purchase price. For example, the seller might pay your closing costs to make up for serious problems revealed in the house. Both sides need to decide how much the repairs will cost and what the house is worth and negotiate from there.

Be Wary of These Costly Problems

Almost every home inspection report will find problems. Even houses that are brand new construction will have small repairs that are done poorly or not up to modern code.

Issues like a broken lock can be fixed for a few dollars and without much effort. There is no need to cancel the house purchase over small or cosmetic problems.

The following kinds of problems can be costly and dangerous — these 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, though if the problem is limited to one small area such as a sink then it may not be a significant issue
  • Electrical issues: old wiring systems, poorly done DIY wiring, or any wiring that is not up to code
  • Furnace and heating system: 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

These types of issues are not typically part of a home inspection. Potential buyers should hire specific inspectors for these issues, or some inspectors are also licensed in these areas.

  • Asbestos: This can be expensive to remove and it is dangerous to breathe and can lead to serious health issues such as mesothelioma.
  • Lead paint: Lead paint may be present in older homes built before 1978. It is essential to have your home tested for lead paint and have all lead paint removed from the premises, especially if pregnant women or young children live in the home.
  • 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. 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 like it is full of problems, but your inspector and realtor can guide you when moving ahead with the sale. Some leaky faucets or minor roofing issues shouldn't be too much of a concern.

You can also consider having the homeowners buy you a one-year home warranty as a 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 such as stained carpeting or torn wallpaper are usually insignificant and not a good enough reason to cancel the entire purchase. After both sides have read the inspection report, the seller may offer to fix the problems or negotiate a solution with the buyer.

Once the seller knows of the problem after reading the report:

  • Legally, the seller must disclose the issues to other potential buyers, such as adding a note to the listing about the roof needing replacement
  • It is in the seller's best interest to cover the cost of the repairs or negotiate with the buyer
  • New buyers might be suspicious after hearing a buyer backed out of the agreement to purchase the home
  • They might offer to pay for a second home inspection cost to prove the repairs were done

In a home seller's market, you might see many buyers skip the inspection altogether, or be more willing to accept homes with major issues. Only you know the right decision for you. Keep in mind an experienced and licensed inspector is usually $100-$800 but will likely save you thousands of dollars.