Banks Are Approving Buyers, But Not Houses
This is a new trend I’ve been seeing in my deals and hearing about from colleagues and bankers in the business.
These days, when the banks send in their evaluators, they don’t just assess value. They also report back about any cracks in foundations, or major up-keep issues. This raises red flags on the file and the loan officer will likely ask to see the building inspection report.
Inspection report can bring up more problems than expected
The state of a property tells a story. Overdue maintenance on brickwork, cracks in the foundation, a deteriorating leaking roof will all significantly lower the value of a property.
When a property is flagged and the loans officer requests the inspection report, you must oblige, even if you put in an offer that was not conditional upon an inspection.
You must go back to the vendors and explain that the bank is insisting on a report.
Of course, this usually happens near the end of your timeline to get the mortgage approval.
If the inspection wasn’t part of the initial deal, the vendors can refuse to let you do an inspection.
This happens quite often because reports often bring up more problems than expected, which can scare off any skeptical buyer.
If the deal ends up falling through, the vendor now has a legal duty to declare all of its findings to any future prospects.
You need skilled brokers to navigate around problems
As you can see, the waters become muddy very quickly. The offer may have been accepted under a condition of multiple offers. The vendor may have purposely accepted because it did not have an inspection clause and the buyer’s plan may have been to renovate the whole place anyway.
In these cases, the mortgage condition timeline is often extended and buyers change banks, hoping that the outcome is different. Most times it’s not.
I once put in an offer on a duplex where three other offers fell through due to the state of the building. I was lucky because my mortgage broker was very experienced and suggested getting a renovation loan to make sure that any major issues about the property were taken care of right away to ensure the bank’s investment.
As well, the mortgage broker sent my clients to the bank with which the property was already mortgaged. That was the edge that we needed and the mortgage approval was finalized.
Up front communication about potential problems with a property and smart skilled service providers are more necessary now than ever as banks continue to put new policies in place to protect themselves.