A homebuyer’s guide to home inspection reports

Congratulations! You have just purchased a property and it is conditional on inspection by a home inspector. What happens when you receive your home inspection report and there are one… two… ten… fifty things wrong with the property? What do you do? 

Terminate the Transaction

If the Agreement is truly not satisfactory, you may simply terminate.  The deposit is released, the Agreement of Purchase and Sale is nullified and you can try to find something else. The Seller may ask what was wrong.  We have seen, on occasion, Buyers who sell the inspection report to Sellers. The Buyer gets the money back and the Seller gets to know what was so wrong so they can correct those items. It is important to note that you cannot arbitrarily use a condition to get out of the Agreement if the inspection is fine. The Agreement of Purchase and Sale is a legally binding contract and a sale must be completed in good faith. Visit the link below to learn more.

Negotiate an abatement of the purchase price

Now that you have a grasp of the quality of the house you may wish to seek a reduction in the purchase price. You exchange the reduction for the waiver/fulfillment of the inspection condition. The amount of the reduction should consider a few major items: 

1. What will it cost to repair what needs to be repaired?
   
2. Is the issue something that must be dealt with prior to closing? While you may be comfortable with the idea of reducing the purchase price so you can deal with an asbestos issue yourself, your lender may not be comfortable with the deal until the asbestos is remediated. It may be that you do not have the option to just take money off. We will call these kinds of issues “Mandatory Repair Items”.  Some lenders will not lend, and the insurance will not insure, in the face of these known defects.
   
3. A lender may consider lending in the face of Mandatory Repair Items but will reduce the amount it is prepared to lend. It may reduce it entirely, or it may reduce the amount until the issues are resolved and then will release the balance.  Your closing down payment amount can go up considerably in this instance.  

Require the Seller to complete the repairs prior to completion 

Other than Mandatory Repair Items noted above, there are also items that you want to deal with which are not mandatory for the sale to take place. This is where lawyers and real estate agents can easily part on advice. For the items that are more cosmetic in nature, a real estate agent might suggest that you amend the Agreement to do two things:

1. Waive your inspection condition.
   
2. Require the Seller to repair items listed in a new schedule to the Agreement in which you list out all the items you want the Seller to complete.  

The problem with this last one, is that these schedules are rarely drafted clearly. We often see a clause that is virtually meaningless. 

Problems drafting repair clauses

Let’s look at a few examples of repair clauses that have not been drafted clearly.

1. “The Seller agrees to fix and repair all deficiencies noted in the inspection report“.  No inspection report is attached (sigh).  

• “The Seller will fix the door“.  Which door?  What is wrong with the door? Is it squeaky? Is it falling off the hinges? Is there a gaping hole in the middle?  We don’t know the answer because it is not in the Agreement.

• “The Seller will deal with the following:
  • Door in the living room is not square; 
  • Floors are not even;
  • Furnace is leaking; 
  • Bathtub needs caulking
  • etc.” 

There are many issues with this kind of drafting. The drafter has not clearly set out the problem, or what fix is required. This leaves much room for interpretation, is ambiguous and difficult to enforce. Our power on behalf of the Buyer – the ability to enforce the terms of an Agreement – stems from what is in the Agreement.  If the Agreement is not well drafted, our power is diminished, and you may not get exactly what you thought you were getting.  Visit the link below to learn why it is important that the agreement be set out in writing.

For these cosmetic items we suggest you simply take an abatement of the purchase price and do the work yourself. The Seller is motivated to cut corners, do the work cheaply, and do the minimum. You will want to ensure that the work is completed correctly, in a good and professional manner.  An abatement in the purchase price shifts the work to you, but you get to do it as you please and if you please.

Proper home inspection clauses

If you are insistent that you want the Seller to do this work, or if the work is a Mandatory Repair Item, your agent should use a formula to draft the amendment such as:

Proper home inspection clauses – Example

According to the inspection report the furnace is leaking. The Seller covenants and agrees to arrange, at the Sellers’ expense, to have an HVAC specialist attend at the property to repair the leak in the furnace, in a good and professional manner, prior to 10 days before completion of the transaction. The Seller agrees to deliver to the Buyer copies of all paid invoices which itemize the work completed to fix the leak. The Seller shall ensure that warranties granted by the HVAC professional are transferrable and will arrange for the warranty to be transferred to the Buyer on completion of the transaction.  If a fee is associated with such transfer, the Seller will be responsible for such cost. The Buyer shall have the right to reinspect, at the Buyer’s expense, that portion of the property in which the work was completed to ensure the work was completed correctly and to the required standard.  If the Seller is unable or unwilling to provide the documentation required to complete the repair on the furnace, the Buyer, at his/her/their option, shall be entitled to either, i) extend the completion of the transaction to provide additional time for the Seller to complete the required repairs; ii) receive a credit on the statement of adjustments for $#### as a repair credit; or iii) terminate the transaction and receive the deposits back without deduction of any kind and will be entitled to sue for damages.  

The Seller refuses to complete repairs

Not all Seller’s are going to negotiate with you. It may be a situation of “take it or leave it”.  You may request an abatement, or ask the Seller to fix something, and the answer may very well be “no”.  At that point, you have two options:

1. Terminate the transaction, or
   
2. Proceed in the face of the issues and you will be responsible for the costs to fix after closing. 

Keep in mind that you should not fulfill your condition if there are Mandatory Repair Items in the report unless your lender provides specific approval. Lenders may not lend in the face of a house full of asbestos or a foundation that needs to be completely repaired, or the lender may give you a much lesser amount. Unless you have cash to pay for the house or a lender who is advised of these issues and is still willing to proceed (get that in writing!) then it may be that this particular house is not the right one for you.  

Forgoing home inspection?

The market today is very difficult from a Buyer’s perspective. Many Buyers are submitting Agreements without an inspection condition. Those Buyers are taking on a risk that they will discover something after closing that is significant. Except in certain circumstances, caveat emptor (let the buyer beware) applies.  

While the above suggestions on how to deal with home inspections may be theoretically sound, Buyers need to make a business decision.  There is risk when insisting on abatement or repairs, that a deal can be lost. Buyers must assess the risk and determine if/how to proceed.  

How we can help

If you have any questions about how to deal with issues that come up in your home inspection report when you are buying real estate, please reach out to the Real Estate Team at Merovitz Potechin LLP.