What if an inspection report reveals problems?

A seller and a buyer agree on the purchase price of a property. So far, so good. An offer to purchase is made, pending a favourable inspection. However, during the inspection, the building inspector uncovers some defects. Major work will be required. Now what?

Here's what you need to know if the inspection report reveals certain defects.

Summary:

• The consequences of an inspection report revealing defects
  • Withdrawal of the offer to purchase
  • Preparing a modified offer to purchase
• Can an offer to purchase be cancelled after inspection?
• Responding to an inspection report
• Who can do the work?
• Negotiation after inspection 

The consequences of an inspection report revealing defects

Withdrawal of the offer to purchase

An unsatisfactory inspection report gives the buyer the right to withdraw their offer. But before making this decision, it is recommended that the two parties discuss the matter. After all, the house still meets some, or even many, of the buyer's needs, and the seller likely still intends to sell.

The first thing to determine is whether the defects are minor or major. It would be a shame to have the transaction fall through for a problem that can be solved simply and easily. But even if the defects are major, it may still be possible to reach an agreement that takes these findings into account.

Preparing a modified offer to purchase

Modifying the offer to purchase after receiving an inspection report revealing defects in the house requires a strategic approach. Here are a few steps to follow to formulate a suitable offer:

1. Evaluate the impact of defects Carefully analyze the flaws revealed in the inspection report, and estimate their severity and potential cost of repair. Some minor defects are easy to correct, while others may require major and costly renovations.
2. Consult experts If necessary, consult qualified professionals such as building contractors, electricians, plumbers, etc., to obtain precise estimates of the cost of necessary repairs.
3. Determine your negotiating margin Based on your assessment of defects and repair costs, decide on the negotiating margin you wish to include in your new purchase offer. Keep in mind that your objective is to reach a fair agreement for both parties.
4. Formulate a revised offer Once you have a clear idea of the impact of the defects on the value of the house, present a revised offer taking these factors into account. You may choose to reduce the proposed price, ask the seller to cover some or all of the repair costs, or include other conditions in the offer.
5. Communicate with the seller Present your new offer to the selling party in a clear and professional manner. Explain why you have revised your offer and provide justifications based on the inspection report and repair estimates.
6. Negotiate if necessary Be prepared to negotiate with the selling party if they do not respond favorably to your initial offer. Keep in mind that the goal is to reach an agreement that satisfies both parties. 

Can an offer to purchase be cancelled after inspection?

Once the selling party accepts a purchase offer, it becomes a bilateral contract that both parties are obliged to respect. This contract is formed by mutual agreement and may be cancelled by mutual agreement. Unilateral cancellation by either party is an exception and must be justified by very serious reasons. Pre-purchase inspection, which is generally a condition of the contract, could be one such exception.

Therefore, if the inspection report reveals significant factors, i.e. major and objective defects that could reduce the value or income of the property, or increase expenses, the purchasing party has the option of restarting negotiations with the selling party, requesting that work be done to remedy them, that a price reduction based on the work to be done be applied, or that the offer to purchase be cancelled. The buying party may also cancel the offer to purchase if the selling party refuses to negotiate or perform the required work. In all such cases, the selling party is entitled to request a copy of the inspection report.

Responding to an inspection report

In response to an inspection report, several measures can be taken, depending on the findings.

• Acknowledge positive points If there are positive aspects mentioned in the report, such as the good condition of certain parts of the house, it's good to identify and appreciate them.
• Discuss concerns If the report reveals problems or defects, you can discuss these concerns with the selling party or their real estate broker. It's possible to ask for clarification or additional details on certain points.
• Negotiate a price reduction If repairs are required, it is reasonable to negotiate a price reduction to compensate for future repair costs.
• Ask for repairs before closing In some cases, it is possible to ask the selling party to carry out specific repairs before closing. It is important to ensure that these repairs are carried out by qualified professionals. 

Who can do the work?

Whether it's the owner or the buyer, one of them may be willing to carry out essential repairs. Generally, a motivated seller will undertake some work in order to fulfill their agreement. Alternatively, a buyer may be willing to manage the renovations themselves, for example, to take advantage of the time on site and make the house their own.

Negociation after inspection

If the owner doesn't want to commit to the work, the buyer will generally decide to renegotiate the price downwards. In fact, he or she could very well make a proposal to modify the initial offer by subtracting the estimated cost of the renovations. This will enable him or her to stay within the budget he or she had set for the purchase of a home.

Of course, responsibilities can also be shared. The details of this new agreement will simply be added in an amendment to the offer to purchase, and each party will then have to honor its commitments. It's advisable to remain flexible during negotiations, communicating professionally and being prepared to compromise.

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