Key Takeaways
- If there is a problem with a home inspection, it can affect your home sale.
- You will need to decide if you want to continue with the sale based on the identified problem.
- If you had an inspection contingency, you may be able to walk away from the sale and get your deposit back.
- You can also negotiate with the seller to take money off the price or to make repairs before closing.
When you are purchasing a home, you will generally want a home inspection to confirm there are no major problems with the property. After an inspector evaluates the home, you will receive an inspection report detailing any issues found.
If major or nondisclosed problems are found and you have an inspection contingency, you likely have the right to walk away from the transaction and have your earnest money deposit returned. This could happen if all options to request repairs, renegotiate the deal, or proceed with the purchase could not be satisfied.
Common Home Inspection Problems
Inspectors can discover many problems as they thoroughly evaluate the home's major systems and components.
The inspector's findings can range from minor maintenance to significant structural or safety concerns. Keep in mind that not every issue makes a home unsafe or unsuitable to purchase.
The table below shows some common home inspection issues.
| Type of Inspection Concern | Example Red Flags |
|---|---|
| Structural and foundational | Foundation cracks, sticking doors and windows that may indicate misalignment, sloping floors |
| Roofing and exterior | Roof damage or deterioration, drainage issues, signs of leaks or water intrusion |
| Electrical and HVAC | Outdated wiring, missing or improperly functioning GFCI outlets, aging or malfunctioning HVAC systems |
| Plumbing and Water | Plumbing problems, low water pressure, leaks, water stains, or other signs of moisture problems |
| Pests | Termite damage, rodent activity, or other pest infestations |
| Health and Safety | Mold, asbestos, carbon monoxide concerns, other potential safety hazards |
What Happens After a Home Inspection?
After a home inspection, you will receive the inspection report. Review it carefully to see whether there are any problems with the home's major systems or anything you are concerned would be expensive to repair. Examples could include critical problems with the roof, foundation, or HVAC systems.
If the report contains concerning findings, you may wish to have a specialist evaluate the issue. For example, an HVAC expert or roofing expert can better determine the extent of the problem than a general inspector. You can also obtain repair estimates to negotiate with the seller about reducing the cost or making repairs.
Depending on the findings, you will have to decide how you want to proceed next.
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Risks of a Bad Home Inspection for Buyers
When a home inspection reveals significant problems with the home's condition, this may affect your ability to continue with the transaction. The costs of your purchase, your ability to obtain insurance, and your lender's willingness to use the home as collateral could all potentially be impacted, and your closing date may need to change to allow time for a resolution.
Unexpected Costs
An inspection can reveal the need for repairs or for purchasing replacement items that you did not initially budget for. You must consider the cost of immediate repairs, as well as future repair costs if the inspection discovers that major systems are near the end of their lifespan.
Loss of Earnest Money
When you made your home offer, you likely made an earnest money deposit. If your purchase agreement included an inspection contingency and the inspection revealed problems, you may be able to cancel the transaction and recover your deposit if you act by the deadline specified in the contract for exercising that option.
Loan Delays or Denial
The general home inspection discussed in this article is not used by mortgage lenders to determine if a home qualifies as collateral for the loan; lenders rely primarily on an appraisal. However, many lenders have certain requirements to ensure the home is safe and inhabitable, and some loan programs, like FHA loans, require specific inspections, such as for pest or wood-destroying organisms, that can affect whether a home qualifies as collateral.
If an inspection uncovers a serious issue that affects the home's ability to be used as collateral to guarantee the loan, this could impact your ability to get financing. The home might not be eligible for a mortgage, or you may have to delay closing until the issue is resolved.
Difficulty Getting Homeowners Insurance
Lenders require a valid homeowners insurance policy to close on a mortgage. Certain issues with a home may make it difficult to qualify for homeowners insurance. If you are unable to obtain coverage because there are major problems with the property, you may not be able to move forward with closing until those issues are resolved.
Disputes With Seller
Buyers and sellers sometimes disagree about whether an inspection finding warrants repairs, a seller credit, or other concessions from the seller. The buyer's real estate agent can negotiate with the seller, based on the terms of the purchase agreement, to try to find a resolution to these conflicts so the sale can proceed.
Delayed Closing
Repairs, additional inspections, and negotiations can make it impossible for a transaction to close on time. If a buyer's mortgage loan or eligibility for insurance is affected by the home's condition, these issues must also be resolved before closing. This can result in a delay.
What to Do After a Bad Home Inspection
After a bad home inspection, your options depend on the severity of the findings, the purchase agreement and inspection contingency, the seller's willingness to negotiate, and your comfort with the risks and costs of any potential issues.
Request Repairs From the Seller
Asking for seller concessions is very common when there is a problem with an inspection. You can make a repair request and ask the seller to fix issues the inspection identified before closing.
When you negotiate with the seller, you will usually be more successful if you focus on major issues with the home, including structural or mechanical issues or safety concerns, rather than expecting every minor issue to be corrected.
Negotiate a Lower Price
You can ask the seller to reduce the price based on the cost of fixing the problem. Your ability to negotiate a lower price will depend on the terms of your purchase contract and whether you included an inspection contingency.
If you are negotiating a lower price, consider whether you will have enough funds to complete any necessary repairs after closing. You don't want major home issues continuing because you don't have the funds for repair.
Withdraw Your Offer
Many purchase agreements include contingencies, or conditions that must be met before the sale can be completed. If you included an inspection contingency, it may allow you to withdraw your offer when problems are found.
However, there are usually specific requirements and deadlines to meet to be eligible to cancel your contract. Be sure to read the agreement carefully to understand your options and consider speaking with a real estate agent or other professional before deciding how to proceed.
A professional can help you understand whether your earnest money deposit is at risk if you withdraw your offer.
Accept the Risks
Lastly, you may decide to move forward without any changes to your purchase agreement if you are comfortable with the inspection findings and the potential repair costs.
Be aware that even if you want to move forward, your lender or home insurer may not be able to issue a loan or an insurance policy with the home in its current condition. This could affect your ability to continue the purchase.
Bad Home Inspection FAQs
If you still need to know more, here are the answers to some frequently asked questions about bad home inspections.
What’s the Biggest Red Flag in a Home Inspection?
There are many big red flags in a home inspection, including foundation issues, problems with the roof, plumbing or electrical issues, or problems with the HVAC system. If you identify serious problems with the home that could be costly or that could make the home uninhabitable (such as major cracks in the foundation), these are all red flags.
Who Is Liable If Defects Are Found After a Home Inspection?
Once a home sale has closed, the home buyer is usually fully responsible for repairs unless there is evidence that the seller purposefully failed to disclose a known issue.
While a homeowner could attempt to pursue a negligence claim against an inspector who missed an obvious issue, the terms of the contract and the specifics of the situation would determine if the inspector is likely to be held responsible.
Do Sellers Fix Everything Found After a Home Inspection?
A home does not necessarily fail a home inspection, but the inspection may reveal many issues. Whether the seller is willing to fix any or all of the problems will depend on the terms of the purchase agreement, the nature of the defect, and negotiations between the buyer and seller.
Final Thoughts: Navigating a Bad Home Inspection
A buyer may have several options after a bad home inspection, from walking away from the sale to negotiating for repairs or concessions. Buyers will have to review their agreement carefully and work with their real estate agent, lender, and insurance company to determine how best to proceed.
Freedom Mortgage can help buyers find the right loans for their home and can explain any lender requirements for a home inspection. Contact us today to speak with a mortgage professional to learn more.
Christine Rakoczy has been a financial writer since 2008, contributing to major publications, including Credit Karma, CBS MoneyWatch, WSJ, and Forbes Advisor. While her special focus is diving deep into mortgages, Christine has extensive experience with all types of financial topics.
In addition to writing for online articles, Christine has also taught business administration courses at a career college and has served as a subject matter expert on numerous business and legal courses.
Christine earned her JD from UCLA School of Law in 2008 and has a BA in English, Media, and Communications, with a Certificate in Business Administration from the University of Rochester.
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