Who Pays for Repairs After a Home Inspection?
A home inspection may reveal the need for repairs. Wondering who pays for repairs after home inspection? Depending on the contract terms, either the buyer, the seller, or both may end up paying.
Q: My husband and I made an offer on the house of our dreams a few weeks ago, but now a home inspection has determined the HVAC system is about to fail. So, who pays for repairs after home inspection? The sellers or us?
A: It’s not uncommon for a home inspection to turn up a few issues. Depending on the wording of the sales contract, either party to the sale may need to pay. On the other hand, because buying a new HVAC unit is pricey, either one of you may be able to opt out of the contract without penalty.
In short—all cost responsibilities for paying for repairs must be spelled out in the sales contract. If it’s not in writing and not in the contract, it doesn’t count. A verbal agreement won’t hold up in court; it must be in writing. Keep reading for more information on who pays for repairs after a home inspection.
Paying for repairs is negotiable during the contract phase.
Sales contracts vary, depending on whether they’re drawn up between two real estate agents or written by hand on a piece of paper to represent the sale between two private parties who do not use a licensed agent to help with the transaction. Licensed agents must comply with any applicable state laws, while the same rules do not always apply to private parties.
In general, a sales contract will contain a repair contingency clause that will spell out the terms of who pays for repairs after an inspection. The clause may state that the seller will be responsible for repairs up to a specific dollar amount, after which the balance of the cost will be split evenly between both parties. Alternatively, the clause may state that the seller has the option to refuse to make repairs and that the buyer has the opportunity to terminate the contract at that point and receive back all earnest money.
If the buyer and seller cannot agree in negotiations about who will pay for the repair costs, the contract usually fails. The buyer looks for another home to buy, and the seller’s house goes back on the market.
With an “As Is” contract, the buyer is responsible for paying for repairs.
In some cases, the sellers realize the house is in a state of disrepair, but they don’t have the money (or time) to fix the issues. When this occurs, the seller may list the house “As Is,” which means the seller will not be responsible for any costs associated with repairs.
The buyer can still order inspections—and should—to determine the amount of disrepair. This gives the buyer a clearer picture of the extent of the issues and will usually be a consideration in whether the buyer wants to continue with the contract. The difference is that the seller is unlikely to pay for any repairs for damage found by a home inspector.
Depending on the wording of the sales contract—if the cost to repair the house is substantial—the buyer may be able to get out of the contract and get the earnest money back. With an as-is sale, there is virtually no recourse or warranty after closing.
The cost of the repairs can also determine if the buyer or seller pays.
Unless the sales contract spells out who will pay for the repairs, in most cases, the seller ends up paying—but the seller isn’t required to do so. Usually, the seller wants to finalize the deal and, in order to move forward with the sale, will agree to pay the repair costs. This is more likely with big-ticket repairs, such as putting on a new roof or replacing old wiring.
If repair costs are low, the buyer may not want to upset the contract and may instead decide to pay the costs later out of pocket.
If the seller agrees to pay the repair costs, that doesn’t mean the seller immediately calls out contractors and makes the repairs. It’s more likely the seller will get bids for the repairs, and then the cost of the repairs will be credited from the seller’s proceeds back to the buyer as part of the closing costs. The buyer will then use the money to have the problems fixed.
It may be in the seller’s best interest to pay for repairs.
Some states have laws that encourage a seller to disclose material defects in the home. If a real estate company is listing the home, the real estate agent will require the seller to fill out a disclosure form listing all known defects. A copy of the disclosure form is given to all prospective buyers before they make an offer. Defects that must be disclosed often include knowledge of water damage, flooding, termite damage, structural problems, or HVAC system or wiring problems.
Disclosure statements are only based on what the seller is aware of, however. If the seller is not aware of problems with the HVAC system, that would not appear on the disclosure form. However, once an inspection pinpoints the problem, the seller will, by law, have to disclose the HVAC problem from that point on. For that reason, it’s often in the seller’s best interest to go ahead and pay for the repairs now because those problems will have to be on future disclosure forms, which may deter other potential buyers.
Occasionally, a seller will agree to pay for at least part of the costs of needed repairs to make the deal fly, but buyers should be careful not to ask for cosmetic repairs, such as new paint on walls or things that do not affect the structure or central home systems.
If the seller didn’t disclose a known material defect, the seller may be liable for repair costs.
The only time a seller can be legally forced to pay for repairs is if the home sells, closes, and then something goes wrong that the seller must have known about but did not disclose. For example, suppose the new buyers move in and the basement floods, prompting them to hire a contractor to dry out the basement and replace the drywall. If the contractor mentions that he came out a year ago and did the same thing when the basement flooded, it becomes apparent the seller did not disclose a material defect.
When this situation occurs, the buyer can file a lawsuit against the seller for nondisclosure of a material defect and ask the seller to pay the cost of the current repairs. The court may then decide to award a judgment in favor of the buyer—ordering the previous seller to pay the repair costs.