Once the deal has closed on a home, changing your mind is not an option, but reconsidering the agreement after the inspection is. It is common to question whether the house is still the right choice at the right price when the inspection report reveals more than expected.
Deciding when to walk away after a home inspection is a personal choice. Factors such as the risks of repairs, budget constraints, and timeline considerations all play a role in making this decision. Whether you are purchasing a home in Madison, WI, or Sacramento, CA, we are here to help you navigate this process.
First, protect yourself with a home inspection contingency
A home inspection contingency serves as a safety net for homebuyers. It allows you to inspect the property within a specified timeframe and either renegotiate repairs/credits or cancel the deal and recover your earnest money if you choose to walk away after the home inspection.
In many markets, buyers typically have between 5-10 days to conduct the home inspection and respond to the seller. If you want the option to walk away after the inspection without facing legal or financial consequences, having a home inspection contingency is highly recommended.
What should your contingency cover?
- Clear response deadline: Ensure your contract specifies how the “days” are calculated (calendar vs. business days) and set reminders accordingly.
- Buyer’s sole discretion to cancel: A strong inspection clause allows you to withdraw after the home inspection and retain your earnest money as long as you provide notice within the specified timeframe as outlined in the contract.
- Right to seek further evaluation: If the inspector identifies significant issues such as foundation, roof, electrical, plumbing, or moisture problems, you may want to bring in specialists for further assessment and repair estimates.
- Repair/credit options: Request that your real estate agent include provisions for requesting seller credits at closing (which may be preferable to pre-closing repairs) or a re-inspection after the seller completes the repairs.
Know when to walk away after a home inspection
A home inspection involves a licensed inspector thoroughly examining a property for any visible issues inside and outside. While minor maintenance and cosmetic issues are common findings, significant repairs highlighted in the inspection report may give buyers pause and prompt them to reconsider the deal.
Red flags identified during a home inspection, such as structural issues, septic problems, or the need for HVAC replacement, can be deal-breakers for many buyers. However, there are other signs that indicate it might be time to walk away.
1. Needed repairs are out of your budget
Although updating outlets to meet current code may be a minor inconvenience, a series of costly repairs, such as electrical and roof upgrades, can quickly push the property out of your budget. If purchasing the home already stretches your financial limits, there may be little room left for additional repairs. In a seller’s market with competing offers, negotiations for repairs may not be feasible.
2. Repairs feel like too much to take on
Even if you can negotiate repair credits or have allocated extra funds for maintenance, some repairs may simply be overwhelming. For instance, repairing the foundation could delay your move-in by several weeks or months, while replacing the septic system may lead to water shutoffs or financing complications. These factors can add stress, time, and costs to the homebuying process.
3. Researching the property turned up more than you bargained for
While thorough research before making an offer is ideal, time constraints may limit your ability to gather all necessary information. During the due diligence period, it is crucial to conduct extensive research on the property. Whether it involves uncovering past events like a death in the house or learning about frequent power outages in the area that could impact your work-from-home situation, knowing as much as possible about the property before finalizing the deal can prevent unpleasant surprises post-closing.
4. Seller dishonesty or a bad gut feeling
Despite our inclination to trust sellers, some may not disclose all relevant information about the property, even if legally required to do so. If something in the inspection report triggers a personal concern or intuition, it may be wise to listen to your gut feeling. If something doesn’t feel right, it is acceptable to walk away, even if the issue seems minor at the time. Remember, there will always be other homes available, perhaps one that is an even better fit for your needs.
Other reasons a buyer might walk away
Home sales can fall through for reasons unrelated to the home inspection. Buyers may choose to walk away due to:
- Disliking the neighborhood at certain times of the day.
- Discovering that the home, while not listed in a flood zone, is still susceptible to flooding or other climate-related risks.
- The home not meeting the buyer’s specific requirements (e.g., inadequate number of outlets, insufficient water heater capacity).
- Encountering disagreements or conflicts with neighbors before closing.
- Noticing that repairs or fixes were not completed or were subpar during the final walkthrough.
Homebuyer due diligence tips:
- Visit the property at different times of the day and in various weather conditions.
- Conduct thorough research on the property.
- Ensure that the home meets your needs and expectations, or that any shortcomings can be reasonably addressed.
How to back out after the home inspection
If the inspection report reveals deal-breaking issues, or if the necessary repairs, timelines, and stress levels exceed your comfort level, it is essential to exit the transaction smoothly while protecting your deposit.
1) Confirm your deadline: Double-check the inspection contingency deadline and how days are calculated. If you require additional time for repair estimates, request a brief written extension from your agent before the deadline; this extension must be agreed upon in writing by the seller.
2) Decide whether to negotiate or cancel: If you opt to negotiate, submit a single written request outlining the major issues and requesting a closing credit or specific repairs by licensed professionals. If the seller refuses or offers inadequate solutions, you can still walk away within the contingency period.
3) If you choose to cancel, provide written notice: Your agent will typically deliver a contract form or written notice citing the inspection contingency and stating your decision to terminate the contract based on the inspection report. Retain proof of delivery via email and the brokerage system. By canceling appropriately and within the specified timeframe, you should be able to recover your earnest money.
4) Release the deposit: The escrow process may involve a mutual release or specific instructions from both parties. Consult your agent to determine the required form in your state and the typical timeframe for this process.
5) Communicate with your team: Inform your lender and insurance broker about your decision to cancel so they can halt their respective processes. If the seller has made repairs or you have negotiated, keep documentation of the inspection, repair estimates, and any relevant notes for future reference.
How to walk away if you waived the inspection contingency
If you waived the inspection contingency, your options for cleanly exiting the contract may be limited to other clauses such as financing, appraisal, title/HOA review, or a mutually agreed-upon release. Otherwise, if you choose to back out of the contract without an inspection contingency, you may risk forfeiting your earnest money. In such cases, it is advisable to consult with your agent and a local real estate attorney before proceeding.
When to walk away after the home inspection: bottom line
While not every issue identified in an inspection report may be a deal-breaker, certain items may warrant reconsideration of the purchase. It may be advisable to walk away if you encounter:
- Immediate and significant safety hazards.
- A combination of water/structural issues such as active leaks alongside foundation/roof problems.
- The need to open up walls for repairs.
- First-year costs that deplete your cash reserves.
- Obstacles with financing or insurance due to property issues.
- A seller unwilling to compromise on credits, repairs, or a brief timeline extension.
If you are already at the upper limit of your budget and your instincts suggest that the property is not worth the price, it is essential to trust your judgment.
If you are unsure, obtaining estimates for major repairs, prioritizing safety over cosmetic enhancements, and requesting a closing credit or a brief extension for further inspection can help clarify your decision. If the numbers still do not align, or if your queries remain unanswered within the specified timeframe, utilizing your inspection contingency to cancel in writing before the deadline can safeguard your earnest money. The right home will align with your budget, risk tolerance, and timing.