Failed Home Inspection

What happens with a failed home inspection? Not every house is suitable for purchase, but this does not mean that the house cannot be brought up to standards after deficiencies are recognized. In this interview, mortgage expert Ed Craine explains what happens when a home does not pass inspection prior to sale.

A home inspection is used to protect a buyer, and to some extent protect the lender who is providing the home loan. Its purpose for a home buyer to is to protect people from purchasing a home without being fully aware of its condition. Primarily used to ascertain that the home is up to health and safety codes, a home inspection will reveal problems with a particular home that may not be visible to the naked eye. Common - but not easily observable - problems which may be revealed during a home inspection include the presence of mold, radon, dry rot, insufficient electrical service, presence of pests, and safety hazards. Moreover, a home inspection can unveil any problems that the seller may be aware of, and has tried to hide.

The home inspection also protects the lender providing the mortgage loan to a certain degree. For example, a home with substantial structural deficiencies will have a lower value than the same home in perfect condition. Essentially, the home inspection can be used as a way for lenders to ensure that they are loaning the correct amount of money to a buyer, rather than loaning more money than the home is worth.

They may have a list of referrals to provide a borrower, but they will not mandate that a borrower use a particular home inspector.

It’s important to note that sometimes sellers will have hired their own inspector, and will tell buyers they don’t need to pay for a second inspection. Don’t fall for this! Buyers should always hire their own inspector, to make sure that their best interests are protected. A second opinion can never hurt.

Potential troublesome areas on a home inspection report are problems which could compromise the health or safety of those living in the home. The presence of mold, for example, is a health risk as is the presence of radon. Safety issues may include insufficient electrical services, faulty wiring, severe dry rot, structurally unsound stairs, decks, etc. Moreover, older homes may not necessarily be up to present day safety codes. An example of this situation would include a home that was built 20 or more years ago, which has a second story deck. The posts which support the railing of the deck may be spaced too far apart by today’s standards but were up to code at the time it was built.

Luckily though, virtually any problem is fixable, barring the location of the home. Mold can be removed; an electrician can replace or repair wiring deficiencies and so on. The only problem that really can’t be fixed is the actual location of a home. If the home is situated on a hillside and subject to mudslides, that obviously can’t be fixed. But everything else can generally be fixed.

The best option for homeowners is to have any problems found during a home inspection corrected.

Alternately, a homeowner may choose to not have the corrective actions taken, and instead discount the home’s price or offer the buyer a credit. However, this can backfire and result in the seller discounting the home more than the problems would have cost to repair. This may also reduce the number of potential offers the seller will receive as some buyers will be reluctant to buy a home which they’ll have to repair immediately.

The first logical step would be to ask the seller to fix any problems. If the seller refuses, a buyer should work with their REALTOR® to negotiate a price reduction. If a solution cannot be reached, the buyer should look for another home.

In short, if you can’t buy a home at the price you want and in the condition you want, you shouldn’t buy that home.

Sellers can avoid failing a home inspection by having the home inspected several months before planning to list the home for sale. This will give you plenty of time to get bids on necessary corrective work and have any problems corrected before the home is listed.

Reviewing all the inspection paperwork is a preventative measure to make sure you know what you’re getting yourself into. It’s always better to be safe than sorry, especially when it comes to one of the largest financial investments you’ll ever make.

Ed Craine is CEO of San Francisco based Smith Craine Finance, an award winning mortgage brokerage. He was named the California Association of Mortgage Brokers’ “Broker of the Year” in 2008. Ed serves as an Executive Director for Business Network International (BNI), and is a contributing author to several NY Times Best Selling Books. Ed is also the publisher of Broker Banker Magazine. Visit SmithCraine.com.

LoveToKnow Mortgage would like to thank Mr. Craine for taking time from his busy schedule to enlighten readers about the importance of home inspections in real estate transactions.

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