Homebuyers can cancel a contract after home inspection. Determining the cause of the cancellation helps determine who pays the costs for the failed sale. If the seller can prove the buyer's actions were legally unjustified, the buyer assumes the responsibility for the costs. This means the buyer must pay the fees and costs -- including the seller's costs. When buyers have valid reasons for the cancellation, the legality of who takes the blame for the canceled sales contract becomes less obvious.
Understanding Home Inspections
During a home inspection, an expert examines a house to discover any problems or potential ones. The inspection helps protects the buyer and seller by itemizing current damage or the risk for damage. This public disclosure protects the seller from charges of hiding damage from the buyer. Home inspectors typically hold contractor licenses issued by the state and are members of professional inspecting associations. Quality inspections provide comprehensive reports of the home and attached structures. Specialized inspections offer a close look at electrical and plumbing systems, the roof and special features such as swimming pools.
Reviewing Inspection Reports
Even if the inspection report is largely positive, buyers may still cancel a real estate contract after inspection. Most home inspections aren't completely positive; most include at least minor issues of concern. While not necessarily a negative, some inspector discoveries might lead to a change of heart by the buyer. If the home inspector notices a minor crack in the foundation and fails to make a negative comment about the damage, the buyer still has the right to hire a foundation expert to investigate the crack. If the specialist indicates a problem requiring correction, this might trigger a cancellation by the buyer. The seller can repair the problem or leave funds in escrow for the buyer to correct the potential damage to keep the sale alive.
Other Reasons for Pulling Out of a House Purchase
A buyer can break a contract after a positive home inspection if he fails to qualify for a mortgage loan. The sales contract typically allows the buyer this contract escape, known as a contract contingency, when a lender can't be found. Some contracts include a clause listing a loan interest cap. The cap requires the buyer to consider available loans up to the stated interest rate listed in the sales contract. If the buyer qualifies for loans from other lenders under the interest cap but chooses to break the contract, the law protects the seller's interests. Asking for a lender prequalification letter before signing the sales contract helps avoid this reason for cancellation.
Another common reason for pulling out of a house purchase is due to a low appraisal. The home appraisal required by a mortgage lender mandates an independent examination by a trained, and in some states licensed, appraiser. This professional examines the physical features of the home, other recently sold houses in the area and the details of the sale property. If the appraiser fails to qualify the house for the loan and estimates the home's worth below the sale price, the buyer can break the sales contract.
The seller's options in this case include hiring another appraiser in the hope of a higher sales price or paying the difference between the appraisal and the sales price to keep the sale together. Obtaining an independent appraisal before listing your home helps avoid appraisal problems.
Lee Grayson has worked as a freelance writer since 2000. Her articles have appeared in publications for Oxford and Harvard University presses and research publishers, including Facts On File and ABC-CLIO. Grayson holds certificates from the University of California campuses at Irvine and San Diego.