One of the most common conditions on a purchase of a home is a home inspection. It makes sense, as while a home inspection is no way a guarantee or warranty, it can reveal useful information about the property, both good and bad.
The wording for the condition typically looks like this.
This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than five (5) business days after acceptance that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.
Pretty exciting stuff right? The key point in the condition is here.
…obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion.
With this condition, home buyers are given a pretty open way to get out of a purchase if they don’t like the result of a home inspection report.
When a home inspection goes wrong, there are three possible outcomes.
Wait, what? I’m out.
The first is simply to cancel the purchase. A conditional purchase is just that – conditional. If a buyer finds a problem in a home that they are not comfortable with, they can choose to kill the deal. The deposit is returned in full, the home is relisted by the seller and the buyer continues the hunt for a new home.
Ouch. That’s gonna cost a couple of bucks.
The second is to negotiate a way to remedy the issue (or issues) that were revealed in the home inspection. This is most commonly done in the form of an adjustment to the sale price. If something is going to cost up to $5,000 to fix and the seller agrees to lower the sale price by $5,000, then the buyer can address it on their own after closing. While in theory a buyer can request that the seller fix it themselves, we recommend against that approach. It can be difficult to specify exactly what “fixing” the issue entails and the two sides to the transaction may have very different ideas about what is the right way to do it.
That’s it? Awesome, let’s go.
The third outcome is the buyer reads the report, understands the issue that has been presented, but doesn’t change their mind about buying the home. This is actually quite common and is obviously predicated on no major issues (structural, electrical, plumbing) being discovered. All homes have imperfections and home inspectors will definitely find something wrong. It may be minor like missing handrails or a plastic dryer vent tube, but we’ve never seen a report that said “No problems found.” This isn’t an indication that sellers always hide problems, but no house is perfect and the guidelines home inspectors use are often more stringent than a builder or homeowner might consider reasonable.
Now that we’ve gone over the possible options for when a home inspection goes wrong, let’s look at the two reasons why sometimes problems occur that might not actually be real problems.
Home inspectors can be wrong.
Just like all of us, a home inspector can have an off day. We have been present at many home inspections where an inspector doesn’t notice something we did. That happens and another pair of eyes can make sure nothing gets missed, which is why we’re present at all inspections for our clients, regardless of whether it’s on the buy or sell side.
Where it becomes more of a problem is when a home inspector mistakenly identifies something as a problem.
- Is that mould or discolouration?
- Is that outlet near a sink needing a ground fault circuit interrupter, or is it grounded at the electrical panel itself?
- Does that new composite material wear better or worse than the traditional type the inspector is used to seeing fail over time?
When a home inspector raises a problem and is wrong, we run into the issue of perceived bias. If we are the listing agents, the buyer and their agent look at our explanation with some scepticism. After all, we have a vested interest (as do our clients of course) in there not being an actual problem that causes the deal to not close.
Even if we are on the buying side, some buyer clients are sceptical as to our allegiance. While we work hard to show clients we care about them, not the deal, some cynics would say that buyer agents also want the deal to close and will be inclined to downplay any problems.
When a home inspector raises an issue and is wrong, it almost always requires an outside party to refute the supposed problem. This means an inspection from an expert in the specific area of the problem. After all, no home inspector is also a plumber, electrician, architect, roofer, foundation repair specialist, mold remediator, painter and so forth.
They are hopefully generally knowledgeable about all of the different aspects of a home but they are rarely specific experts in more than one of the aspects. I’ve met many home inspectors who were electricians and I trust their opinion on that topic more than I would on, say, a plumbing issue.
We approach problems that come up in home inspections the same way each time. We’re interested in learning about them, we want to know more details and we want to understand how difficult it would be to remedy the issue(s). By coming at problems from this perspective, we learn what the magnitude of the problem is, whether it is in fact a genuine problem, and how our clients can proceed. This leads us to the next reason why something that is not a problem, can become a problem.
Clients can overreact.
Now, of course, all of our clients are well informed, calm and reasonable people. Buying or selling a house is stressful though, and the sudden appearance of a supposed problem can spook even the most level headed of people.
When a home inspector raises a problem, it can result in a sudden shift in mood for clients.
- A buyer client who was excited and happy about their purchase can suddenly worry they are buying a massive problem.
- A seller client who was fine with the sale price that was negotiated can end up adding in significant dollars to remedy the problem.
One of the biggest challenges with any home inspection that reveals a previously unknown problem is that we start comparing apples and oranges.
If we look at two houses and decide on buying one and then the home inspection reveals a problem, we start to consider whether the other house might be the better buy. We take the fact that we now know of this problem and look at the other house as if it has no problems.
In reality, we are merely better informed about the problems of the house we have bought conditionally. We know its strengths and weaknesses now and we only know the strengths (or perceived strengths) of the other house.
The Realtor Code of Ethics is clear that Realtors can’t dismiss or minimize problems simply to move a deal forward, and we absolutely agree. It is less clear, however, on when a Realtor should make sure a client isn’t misunderstanding the gravity of the problem. At the end of the day, it is always the client’s decision to move forward or not, but we view it to be our job to make sure they know when something is common or uncommon.
As we have worked with hundreds of sellers and buyers, we have a very good handle on the extent of problems and can often help our clients understand the information the home inspector provides. Sometimes that means we explain why it’s quite typical, share stories of clients who had it fixed and the client moves on, relieved that they understand the impact. Other times, we shake our heads and say that is a very big deal and describe what it might mean. We’ve absolutely advised clients to walk away from conditional purchases based on the results of an inspection, as sometimes the best deal is no deal at all.
Every home has problems and due to the limited nature of a home inspection (no opening up walls, moving items to check for problems, etc.) we still don’t know the total condition of all aspects of a home after the home inspection. We know more but we don’t know everything – because we can’t.
Here is where we come to the crux of the matter. While no one likes buying a home that has a problem, all homes have problems. Some major, some minor – but all homes have problems.
When a major issue is revealed through a home inspection and it materially changes the value of the home, then walking away from a deal or renegotiating the price makes sense.
When a minor issue that is likely prevalent in many homes is presented poorly by a home inspector as being of significant concern, or a client interprets a minor problem as a huge problem, deals can fall apart when it is not to the benefit of either the seller or buyer.
It is a challenging line for home inspectors and real estate agents to walk. Doing their jobs properly and making sure the buyer knows the state of the home, yet not alarming their client with minor issues that many homes possess. If you’re considering buying or selling, then we’d love to help you navigate this and other aspects of the transaction. Get in touch with us to discuss the next steps!