One thing that we all have in common is that we love getting a deal. If we see an opportunity to save money, then we’ll be all over it!  Purchasing a home is no different of course. 

One opportunity to save money when purchasing a home is to negotiate a lower price based on something you find on the property inspection.  That is, if your offer is conditional on inspection, which is often the case. 

It might be something minor.  It might not be anything that bothers you.  But it may still be something that you can use as a bargaining chip.  A good realtor will bring this to your attention and will do anything they can to help you to save a buck. 

Regardless of whether you have a mortgage approval in place or not, you need to be very careful here, as this is where things can go very wrong with your purchase.  Let me further explain. 

If the seller agrees to the price reduction, your realtor will create an amendment to reflect the lower price.  Your mortgage lender will need to see both the original agreement, as well as the amendment. 

The first thing the lender will ask is the reason for the price drop.  After all, you and the seller had already agreed on a price.  

So why is the seller now willing to drop the price below what you have already agreed to?   

The lender will suspect there is something wrong with the property.  Even if it’s something trivial, it’s still signalling to the lender that there is an issue with the property, which they’ll want to know the details, if the price drop is only a couple thousand. 

Along with the explanation as to why the price was lowered, the lender will then ask to see a copy of the property inspection, which they will review in depth.  They want to see exactly what prompted the seller to lower their price. 

If the issue is something minor, such as a dripping faucet, or leaky gutters, the lender is not going to have any problem with it.  Their concern is whether or not it could be a safety or structural issue with the property. 

 

After reviewing the property inspection, the lender will do one of four things: 

 

  1. Issue a new mortgage commitment reflecting the lower purchase price

This indicates that the lender is okay with the problems. As long as there is nothing concerning to the lender, then this is what can be expected. 

 

  1. Request a hold back of funds to complete the repairs after closing

This would be done as a purchase plus improvements mortgage.  If the property requires $10,000 in repairs, then they may hold back this amount at closing.  The lender would then release this money back to you once it’s been confirmed that the issues have been addressed.  The additional funds required can often be added to the mortgage, so you shouldn’t be required to come up with the $10K shortfall (for example) on closing.  You would need to come up with the money to complete the repairs prior to the funds being released. 

 

  1. Request that the work be completed by the seller prior to closing

This would generally be done if the lender perceives the issue to be a major safety concern.  For example, if the property had a weak step that was recommended to be repaired immediately, then the lender may want this fixed before closing. 

 

  1. Decline your application

It doesn’t matter if the lender has already issued you a mortgage commitment or not. They can still back out if they do not feel comfortable with something.  If the property was found to have structural issues, or any significant health or safety concerns, then they may not want anything to do with the property at all. 

When reviewing the property inspection, the lender could also find something else about the property that could be concerning.  It might not have anything to do with the reason why you were asking for the discount to begin with. 

 

How To Ensure Your Property Inspection Will Not Affect Your Mortgage Approval 

Before you engage in any additional negotiation with the seller, ALWAYS reach out to your mortgage professional first to ensure that the issues won’t jeopardize your approval.  Tell them the reason why you are negotiating the lower price and send them the inspection report for review. Ask them to read through the entire inspection to ensure that there are no other potential red flags that could cause a lender to reject the property.  

It doesn’t matter how solid your application is, how much money you make, how much you have in the bank, or how solid your credit is.  It’s sometimes the property that gets declined, not the borrower.