ABA Family Legal Guide

Buying and Selling a Home

The Steps of Buying and Selling a Home

Home Inspections

What should the buyer do if the inspection uncovers material and costly defects?

There are several options. Although the inspection contingency may simply allow the buyer to walk away from the purchase, this may not be desirable, especially if the home has other qualities the buyer wants. One alternative is to negotiate with the seller to lower the previously agreed-upon price. For example, if the seller was unaware that the furnace was corroded and in need of replacement or that there was rotting timber that needed replacement, the seller may be amenable to reducing the purchase price by the estimated cost of repairs. However, if this option is chosen, the buyer should be aware of the fact that it may affect the amount of the mortgage that may be obtained from a mortgage lender. Many lenders will take such a repair credit into account in determining the amount of financing which is available to the buyer. For example if the agreed-upon purchase price was $300,000 subject to a repair credit of $20,000, the buyer may find that the lender will not lend 80 percent of $300,000, but will only lend 80 percent of $280,000, so the buyer will have to find extra funds to make the repairs.

Alternatively, the price could remain the same with the seller repairing the problems at his or her expense. The buyer's risk if this alternative is pursued is that the seller will not complete the job to the buyer's satisfaction. Whatever the outcome, the result should be evidenced in writing as part of the contract.

While some buyers use an inspection to extract further concessions from the seller, it is unlikely that a seller is going to agree to substantially reduce the cost of a home to reflect the cost of correcting minor problems such as a repairing a porcelain chip or replacing peeling wallpaper or worn carpeting. A seller facing a long list of minor repairs may want to end negotiations unless the seller has no other alternative than selling the home to this particular buyer.