People making offers to buy real property often walk through the property at issue first. Especially when they conduct the walk-through with the support of a real estate professional, they probably assume they understand the condition of the property.
Between the walkthrough and the disclosure documents provided by the seller, the buyer should have a realistic idea of the property’s condition. However, oversights during initial inspections are somewhat common, which is one reason that mortgage lenders require professional inspections, as well as appraisals and sometimes surveys, before funding a transaction.
What happens if an inspection report includes significant defects not previously disclosed by a seller?
Buyers have multiple options available
Buyers confronted with a property in surprisingly poor condition or in need of immediate repairs typically have three options available to them. They can accept the property in its current condition, provided that their lender still agrees to finance the transaction.
They can also attempt to renegotiate with the seller. Sellers might agree to cover repair costs or split the difference in property value based on the issues included in the inspection report.
If the seller refuses to work with the buyer or the lender does not want to finance the transaction due to the property’s condition and the price offered, then canceling the closing is likely necessary. In such cases, buyers could be at risk of losing their earnest money unless they negotiated an agreement that included an inspection or financing contingency.
People navigating residential real estate transactions need to think ahead to potential issues and be proactive about protecting themselves. Recognizing that inspections can turn up significant latent defects can help buyers protect themselves when making an offer and respond more effectively to a relatively surprising inspection report.