When a Walk-Through Reveals Problems an Inspector Missed

Learn the steps you can take when the home you're buying isn't what you bargained for. June Fletcher offers a cautionary tale for sellers in a slowing market.
By: June Fletcher: The Wall Street Journal Online
Question: I recently an offer on a vacation home in the Catskills, with a $10,000 earnest-money deposit. It was occupied by tenants when we saw it. The offer was accepted, we had the home inspected, and the tenants left. But this morning we did our final walk-through before settlement, and discovered damage that wasn't visible when the tenants were living there. We're very upset, and aren't sure that we want to settle now. What should we do?

Answer: If you're not sure what to do, the best advice often is to do nothing.

So put that pen down. Until you sign those final settlement papers, you still have the upper hand in negotiations.

Of course, everyone else involved in the deal, from the seller to the lender to the brokers, is probably pressuring you to settle right now. But that's because they don't get paid until you sign. That isn't to say that decent people who value their professional reputations won't return your calls once the ink is dry on your deal, but the urgency will be gone. If you're really worried, ask to delay settlement for a few days. You'll feel like Madonna, because you'll instantly have everyone's undivided attention.

Your next step is to figure out exactly what is wrong with the house, and what it will cost to fix it. For that, you should call the inspector who examined the house. Ask why the defect wasn't listed in the inspection report, bearing in mind that there could be a good reason. The damage could have arisen after the inspection took place: for instance, a tree branch could have hit the roof during a storm. It could have been caused either deliberately or unintentionally when the tenant moved out - say, when a mover dinged the drywall with the dining-room table, or the tenant decided to rip out all the light fixtures. Or it could have been there all along, but hidden by the tenant's stuff (which is why it's smart to pay particular attention to anything in a home inspector's report that begins "Couldn't gain access to...").

No matter what caused the damage, you shouldn't have to pay for it now. If, after a re-inspection of the property, it turns out that the damage is easily fixed - and even some scary-looking problems liked cracked support beams and roof leaks can often be patched quickly and inexpensively - ask the seller to escrow funds for the repair. Request a generous figure that's sure to cover the cost. Escrow agents generally pay the contractor doing the repair directly, and return the balance to the seller.

But if the problem is so significant and daunting that you're sure you don't want to go through with the deal, consult your attorney. Depending on the contract's language and conditions, and the nature of the damage, you may be able to recover your full deposit.

And sellers, please heed this cautionary tale. In today's slowing real-estate market, buyers are much fussier about defects - even superficial ones - than they were just a year ago. Robert Deily, a real-estate attorney in Catskill, N.Y., suggests that landlords inspect their properties carefully between the time the tenant moves out and the buyer makes a final walkthrough. "Tenants are notorious about leaving places a mess," he says. "Fix any problems before the buyer ever sees them, and you'll avoid a lot of trouble."


- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.