In Chicago's Low-Inventory Market, Buyers Are Losing Deals at Inspection - Not at the Offer Table

Winning a bidding war in the Chicago metro area no longer means buying a home. A growing number of deals are falling apart during the home inspection, not because homes have major defects, but because sellers fielding multiple offers have no incentive to negotiate repairs or credits, according to Alex MacLagan, owner of MacLagan Home Loans, a Chicago-area mortgage brokerage partnered with more than 120 lenders.

This dynamic stems directly from tight inventory. In a market where move-in-ready homes routinely attract competing bids, sellers hold enough leverage to refuse concessions that were routine a few years ago. Buyers who win the bidding then face a second decision: accept a property with unresolved issues or walk away and restart the search.

“The sellers are not willing to either make the repairs or sometimes give a seller credit to that buyer,” MacLagan says. “You have buyers nowadays that are like, they’re not willing to work with me on this. I’m canceling out of the purchase agreement.”

Where Deals Actually Break Down

MacLagan identifies three recurring reasons deals collapse. Inspection disputes top the list, followed by borrowers who damage their own credit mid-transaction, opening auto loans, maxing out credit cards, or missing payments between pre-approval and closing, and aggressive rate shopping that stalls momentum until the deal dies.

The inspection problem is structural. In a multiple-offer environment, buyers already stretch to win: higher purchase prices, fewer contingencies, limited asks for seller credits. By the time they reach inspection, they have already conceded most of their negotiating position. When the inspection reveals issues, the seller’s calculus is straightforward: another offer is likely waiting.

For buyers using financing, the competitive disadvantage compounds. Cash buyers eliminate the financing contingency entirely. MacLagan’s response is a strategy called a TBD underwrite, where the borrower’s income, assets, and credit are fully underwritten before a property is identified. Once a home is under contract, the remaining steps are ordering the appraisal, securing homeowner’s insurance, and completing title work. MacLagan says this can compress closing timelines from three weeks to ten days or less, narrowing the gap with cash offers. Combined with waiving the appraisal contingency when the buyer is confident in the home’s value, a financed offer can approach the speed and certainty of a cash bid.

Home Prices, Not Rates, Are the Real Barrier

The affordability conversation tends to center on interest rates. MacLagan sees it differently. Current rates are roughly in line with 30- and 40-year historical averages, he argues; buyers during COVID got used to historically low rates and assumed they were permanent. The real constraint is home prices, driven by a supply deficit with structural roots.

Construction timelines in Illinois are part of the problem. “If you go down to Texas, they’re building houses in three to six months,” MacLagan says. “Here it’ll take like a year to two years.” Permitting processes, city inspections, and holding costs slow new construction and raise its price, which limits how quickly inventory can respond to demand.

MacLagan traces this back further. After 2007 and 2008, home prices dropped low enough that building new homes cost more than the finished product would sell for. Builders stopped, and the supply gap widened. “You don’t have the supply and the demand’s there,” he says. “So home prices are going to keep going up.”

Self-Employed Borrowers Face a Documentation Gap

A separate pattern MacLagan encounters involves self-employed borrowers who assume they cannot qualify for a mortgage after being denied a conventional loan. The issue is how income is calculated. Conventional underwriting relies on tax returns, which often show low net income after deductions. A borrower whose tax return shows $3,000 a month in qualifying income might show $50,000 a month through a bank statement loan, which calculates income from deposits rather than taxable earnings.

The difference in buying power is large. At $3,000 a month in qualifying income, a borrower might be limited to a $150,000 purchase given current rates, taxes, and insurance. Bank statement loans, profit-and-loss loans, and CPA letter loans offer alternative paths to qualification that reflect what self-employed borrowers actually earn rather than what their tax returns report.

MacLagan describes a recent closing involving a self-employed roofing contractor who was building his own home and had maxed out credit cards using personal and business funds. Every other lender had denied him, and his credit score fell below the minimum threshold. MacLagan requested a credit score exception from the lender. When the appraisal came in low, he moved the file to a backup lender that could accommodate the lower value while still allowing the borrower to pull out the cash he needed to pay off debts. “I was able to make someone who could have gone bankrupt and lost everything they were trying to work for, put them in a better spot financially,” he says.

What Borrowers Are Competing Against

The competitive pressure extends beyond individual transactions. Real estate agents working with buyers are showing significantly more homes per client than they did before or immediately after COVID, MacLagan says, because the properties that attract the most interest, those that are already renovated and move-in ready, are the same ones generating multiple offers. Buyers looking for homes that need work face less competition but take on renovation costs in a market where construction is already expensive and slow.

MacLagan says he tracks three indicators to advise borrowers on timing: the volume of new homes being built, inflation data, and the jobs market. New construction directly affects inventory and prices. Inflation and employment data drive interest rate direction. “Those are the two biggest things that are always going to affect where interest rates are heading,” he says.

For buyers in the Chicago area, the practical takeaway is that getting pre-approved is no longer the hardest step; surviving the inspection negotiation is. Sellers with multiple offers will continue to hold that leverage until inventory catches up with demand, and in Illinois, the construction pipeline moves too slowly to close that gap soon.

About the Expert: Alex MacLagan is the owner of MacLagan Home Loans, a Chicago-area mortgage brokerage partnered with more than 120 lenders.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.