Almost every resale home purchase is conditional on the buyer being satisfied with the results of a home inspection.
But what does satisfied mean? When can a buyer back away and when are they just using the inspection as a convenient way to find a loophole when they get cold feet?
If the buyer decided not to do an inspection and then just cancelled the deal, they would likely lose their deposit and could probably be sued for breach of contract by the seller if they sold to anyone else for less money.
Inspection conditions are not an automatic option to terminate, as many buyers believe. A lot will depend on the exact wording of the condition language. It will help a buyer if it says that the buyer has to be satisfied with the inspection in their “sole and absolute discretion.” The buyer may have difficulties if they use a relative who is not qualified and who just says something like “This is not a good house.” Make sure you use a qualified home inspection firm. Check to make sure that they are registered with the Ontario Association of Home Inspectors.
Usually, a buyer will find an inspector or, if using an agent, the agent may suggest one. The buyer and inspector spend a few hours going through the house and after the tour make a decision about whether to go ahead based on what they’ve seen.
One of the main problems is that inspectors are limited in how much they can investigate. They are not allowed to look behind walls to see if there is evidence of leaks or mould. This is made worse because sellers may not disclose defects in their property, expecting the buyer to be bound by caveat emptor, or buyer beware, meaning too bad if you find out about problems after closing.
Sellers, on the other hand, are not permitted to see the buyer’s home inspection report, unless it says so in the condition. This can be serious for a seller. Let’s say the house sells subject to a home inspection condition. The buyer says “I am not satisfied” and cancels. Now new buyers suspect something must be wrong with the house and the seller has no way of knowing how to explain this.
In order to solve this problem for a seller, I recommend inserting a clause into every home inspection condition that if the buyer is not satisfied for any reason and cancels, they have to provide the seller with a copy of their inspection report within 24 hours. In this way the seller can explain the problem to a future buyer or, better still, just fix it.
Still, in some cases sellers are taking the position that the buyer was not acting in good faith when they cancelled the deal as a result of an unsatisfactory home inspection and are refusing to return the buyer’s deposit. Deposits cannot be returned to a buyer unless both the seller and buyer agree. This can cause a buyer difficulty as they will not have the necessary money to make an offer on another house while they fight over the deposit.
If buyers and sellers understand all their rights and obligations under the home inspection condition, there will hopefully be more disclosure of defects up front by the seller, so that the buyer can in good faith conduct a proper home inspection and close.
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