Okay, so you put an offer in on a new home – congratulations! One of the terms of the offer, or as we call it, a condition of sale, was that you would have a home inspection. The standard clause says the home inspection will be at your expense and that you will get a report satisfactory to you in your “sole and absolute discretion.”
The home inspection is intended to find things you might not have noticed on your own, or couldn’t see (like inside the attic) or assess the extent of things you might have seen but weren’t sure about.
Sometimes the home inspector will find things that are very minor: a missing GFI plug in a bathroom, for example, or a cracked cover plate or a leaky tap. I think in every single home inspection I’ve been at, the home inspector has commented on the need for grading or extending downspouts. In a lot of homes, the smoke detectors are old and should be replaced. These are not the kinds of things we would walk away from a deal over: the costs of those fixes are minimal when we’re talking about several hundred thousands of dollars.
But sometimes, big ticket items pop up in an inspection, or at least major enough that they can cost quite a bit to fix. One example is where the exhaust fan from a bathroom has been vented into the attic instead of out the roof or soffits. That means moist, warm air has been circulating above the bathroom and usually we’ll find damaged, saturated wood and mould. That’s the kind of thing that we might ask the sellers to fix or seek a price reduction to cover the cost of re-venting the fan outside, and replacing any damp insulation. (Although I’ve had buyers who said they’d take on that cost themselves, so it really depends on the buyers.)
But there can be all kinds of things that show up in a home inspection: cracks in the foundation, windows that have lost their seal, furnaces that don’t work properly, asbestos in the ducts, knob and tube or aluminum wiring, and so on.
In these situations, your realtor picks up the phone and calls the seller’s agent to see if the sellers are aware of the problem and how they want to deal with it. Most times the sellers are mortified. They had no idea there was mould, or knob and tube wiring, or whatever your inspector has found, and quickly agree to address it. Sometimes they’ll get it done so quickly we don’t even need to amend the agreement. Other times, we’ll do up an amendment saying the sellers will do the work at their expense, and provide receipts to the Buyer or the Buyer’s lawyer verifying it has been done in a good and workmanlike fashion, before the buyers take possession.
In the latter situation, the receipts are usually enough, but we will sometimes specify that the buyers have a right to a further inspection. Some home inspectors won’t agree to come back to take a look at the work for liability reasons. They might flag an electrical problem, but since they are not electricians, they won’t confirm whether it’s been corrected properly. You may need to have an electrician, or a plumber, or an engineer, or whatever the trade is with expertise, to verify that the identified problem has been corrected.
If you do the additional walk through and discover that the work hasn’t been done, or wasn’t done properly, we notify your lawyer and they will negotiate a hold back amount, if one hasn’t been agreed to in the amendment.This means that some of the closing funds due to the seller on closing are held back until the work is done or the seller agrees to release the funds so the buyer can do the work themselves.
I had one situation, for example, where a window that was still under warranty had lost its seal. The seller ordered a new one to replace it, but it hadn’t arrived by the time of closing. The lawyers agreed to a value for that repair, enough to buy a new one if need be, and the hold back money was held in trust until the new window was installed as agreed to, then the funds were released to the sellers.
But what if the sellers won’t agree to do the work at all? Sometimes, they can’t afford to. Or perhaps you just don’t trust the seller to do the work properly and would prefer to do it yourself. We will try to negotiate a price reduction; after all, now that the seller knows about the problem, they also know they’re going to show up in any home inspection, so it’s in everyone’s interest to find a way forward.
But what if we can’t agree on an amount of a price reduction?
If you really want the property, you have to decide if you can afford to do the repairs yourself and if you are prepared to move forward on that basis. If so, we will have you either waive the home inspection condition, or sign a Notice of Fulfilment of Condition, and the repairs will be your problem to deal with.
But if you don’t want to deal with them either, you have the right to walk away from the deal. That’s because “sole and absolute discretion” means you don’t have to do any work you don’t want to do. We would have all parties (including the managers of both real estate brokerages) sign a Mutual Termination and Release and that’s it – there’s no deal and you get your deposit back without interest or deduction. You will be out of pocket for those inspections you did, so that part sucks. It’s not an ideal situation particularly in a rural property, where inspections for well and septic can run pretty high, but at least there’s an escape hatch. You’re not stuck in a situation where you can’t get out of the deal.
It can be heartbreaking, but if there are enough red flags, it can be prudent to say, “you know what, I love this house, but I’m not willing to go forward.”
I had buyers who really loved a house that on the surface was gorgeous, but the home inspector found serious issues: foundation cracks, black mould, asbestos, a fireplace that needed major work, and structural problems. My buyers decided to walk away. I thought they’d be upset that they’d lost $ 600 in inspection fees, but they felt they’d actually saved thousands of dollars. And we went on to find a house they loved even more, in much better shape than the one they walked away from, so it all turned out well in the end.