Why "Failing the Inspection" Isn't Possible
You've all heard someone say that a house "failed inspection." And time and time again, I'm asked the question: "What happens if the house fails inspection?"
It's a colloquialism that's commonly used, but it's also a myth. There is no such thing as failing the inspection.
Wait, what?! Let me explain.
The inspector has no say in whether you buy the house or not. You, as the buyer, have the final say; so even if the inspector tells you that the house is barely standing and is a steaming pile of dung, you can still choose to buy it. (Whether or not you can get a mortgage on it is a different issue, but we'll talk about that too.) You can even choose not to get an inspection at all... though I would highly advise against that.
The purpose of the inspection is for you to be able to make a fully informed decision about whether or not to purchase the property. The inspector will come in and look at everything from the foundation to the electrical to the roof, and often times they'll deliver a report that's many pages long - don't be afraid of this! It does not necessarily mean you're buying a lemon, but it does mean that your inspector is thorough, which is exactly what you want. On top of that, you may decide to get a radon test, a meth test, a mold test, or to get the sewer scoped. You may also decide to look at the quality of the schools in the area, if there are any sex offenders in the neighborhood, and the crime rates in the area.
ALL OF THIS is part of what's called "Due Diligence" - you as a buyer get to do whatever research is important to you as part of your due diligence, and it's your agent's job to help facilitate that. They can't tell you what exactly you should look into, but they can help you schedule the inspection, or contractor bids, or anything else you want information about, and they can ensure you have access to the house as needed.
Once you have all of that information, YOU get to decide if you're buying the house or not. You may ask your agent to try to negotiate for the seller to do some repairs, but they aren't required to do any. If the seller tells you "no" then you have to decide if you want to take care of those repairs yourself, or if you want to walk away.
If you decide not the purchase the house due to any information you gathered during due diligence, it's not that it "failed inspection," it's that you decided you weren't happy with the condition of the property and made the informed decision to cancel the contract.
Now, what about the issue of getting financing?
In order to get a loan on a property your lender is going to require an independent appraisal on the property; the main purpose of the appraisal is to make sure that the house is worth at least as much as the lender is giving you, because they don't want to loan you $500k if the house is only worth $450k, in case you stop making your payments and they need to foreclose on it. However, the appraiser is also making sure that the house is in a decent, livable condition, and depending on the loan program they may identify different safety concerns that need to be addressed in order to get that type of financing.
So it is possible for the appraiser & your lender to have a list of repairs that need to be fixed prior to closing in order for them to issue your loan, but again the seller is not required by the purchase contract to agree to those. This is where it's important to have an experienced agent to negotiate on your behalf to work some magic. Common repairs that are required are: adding earthquake straps to a water heater, adding a railing to any staircase with more than 3 stairs, fixing any peeling paint, taking care of any exposed electrical wiring, etc. Each loan type has different requirements that the appraiser will look for.
The appraiser looking for these items in no way should be used as a substitution for a home inspection, as they are only looking for a very specific list of lender requirements, and they are far less thorough when it comes to condition; their primary job is to evaluate how much the home is worth.
As always, if you have any questions about any of this (or anything else) feel free to reach out to me!