Home Buying: What to do After a Bad Home Inspection Result

Home inspections can be a frustrating part of the home buying process, especially when the report comes back with issues. A bad inspection may seem like a deal-breaker for buyers, but you don't have to give up that dream property. The key is to understand what a home inspection is and to know what to do if the inspection report comes back with serious issues. Keep reading to learn home inspection basics and how to handle latent issues.

Home Inspection Basics

Without a Property Condition Statement (PCS), also called a Property Condition Disclosure Statement (PCDS) and/or a Property Disclosure Statement from the seller, the homebuyer will want to insist upon a home inspection by a certified property inspector.

A pre-purchase home inspection offers homebuyers the opportunity to discover any issues with the property that may not have been obvious during the original walk-through. The more information a buyer has about a home, the easier the decision on whether the purchase is a higher risk level than initially anticipated. A home inspection is a valuable failsafe against being met with thousands of dollars of out-of-pocket repairs after the home is purchased.

In general, the home inspection provides leverage for the homebuyer. If problems are identified by the home inspector before a finalized purchase of the home, it's often possible to negotiate the cost of minor repairs and some major repairs into the price or to have the seller agree to fix the issue(s) before the final sale documents are signed. According to the Canadian Association of Home & Property Inspectors (CAHPI), this would be instituted in a "subject to home inspection" clause.

Latent Defects or Hidden Issues

It can be a homebuyer's nightmare. You've fallen in love with a home and are already picturing amazing meals in the kitchen and celebrating special occasions in the spacious, finished basement. Then the home inspection report comes back and there are serious issues. The common problems home inspectors encounter and often not disclosed by the seller include but are not limited to:

• Electrical problems
• Foundation cracks and leaks
• Previous basement flooding and/or water damage
• Roof leaks and/or water damage
• Mould

The items in the above list are considered latent defects or hidden safety hazards. If a seller is aware of any latent defects, they are required by law in Canada to report its existence if it "... makes the home uninhabitable by the buyer, unfit for the buyer's intended purpose, or is dangerous" states WhichMortgage.

"Example of latent defects that should be disclosed include a problem with the foundation, an illegal basement apartment, or a very serious water in basement or roof water problem that has not been repaired."

What to Do About Latent Issues

The first thing to do when a home inspection comes back as "fail" or "bad" is to take a deep a breath and don't panic. If the homebuyer has included the "subject to home inspection" clause in their offer, the hidden issues/latent defects may become the responsibility of the seller.

Depending on the types of contingencies included in the buyer's purchase offer, the seller may need to fix the problems before moving forward with the sale and be subject to another home inspection to ensure the issues have been correctly fixed. The clause may also give the homebuyer the opportunity to rescind their offer and have any earnest money returned.

When a "subject to home inspection" clause has not been included, it's still possible to negotiate with the seller regarding the repairs. There may need to be a bit of back-and-forth to come to a compromise, but many sellers are willing to negotiate at least a portion of the repair cost into the purchase price or have the issues fixed prior to the closing. If an agreement cannot be reached the homebuyer may choose to cancel the deal.

How to Negotiate Repairs With the Seller

When the inspector returns with a report full of home repair items, it might be time to sit down with the seller and negotiate who will be responsible for the work. Before discussing necessary repairs and who has to pay for them, make a plan to help make negotiating successful. Some tips for negotiating repairs with the seller include: 

• Determine priorities: Determine what the seller has to fix and limit requests to non-superficial problems, such as foundation problems, electrical issues, and roof damage. 
• Gather quotes and bids: Reach out to a couple of different general contractors to discuss the items on the inspector’s report and collect accurate quotes and proposals for the work. 
• Be realistic: Do not let emotions interfere with the home purchase. Take a deep breath and remember the main priorities when negotiating home repairs with the seller - those non-superficial problems. 
• Decide who pays: Determine what the seller should pay for and what the buyer will take care of. Additionally, determine if the buyer will handle the repairs and if the seller will pay them back once repair work is completed. 

Turn a Negative Inspection Into a Positive Experience

A bad home inspection can feel like the end of the world, or at least the loss of a great house, but it's critical to reveal the true cost of the property. A bad inspection doesn't have to be a deal-breaker. Sometimes, they can allow you to get a better price. Other times, it's a sign that the home wasn't the right choice for you, and that's ultimately a positive, too.