Buying a home might be the most significant financial commitment you ever make. So, it isn’t surprising that you want to avoid extra expenses when purchasing.
House inspections are another expense during the home-buying process that you could choose to eliminate. However, choosing not to have a home inspection isn’t an expense you should avoid.
If your purchase contract includes a home inspection contingency, you have some protection if the inspector finds severe issues with the property. It allows you to negotiate potential repairs or withdraw from the agreement.
While sellers don’t generally like contingencies, this can be very important for buyers regarding property inspections.
We will examine why buyers choose to use inspectors for homes they’re purchasing and why the home inspection contingency is so important.
From many years experience selling real estate, the contingency for inspections is a common and valuable addition to an offer. It is crucial for buyers spending hundreds of thousands of dollars on a property to understand the condition.
Facts and Figures Worth Knowing
1. A property inspection contingency is a clause in a real estate contract that gives the buyer the right to have a professional home inspection of the property.
2. The purpose of the home inspection contingency is to allow the buyer to uncover any potential issues or defects with the property before finalizing the purchase.
3. During the specified contingency period, the buyer can hire a qualified inspector to assess the home’s condition and identify any significant problems.
4. If significant issues are discovered during the home inspection, the buyer may negotiate repairs, request a price reduction, or even withdraw their offer without penalty.
5. Including a house inspection contingency provides buyers protection and peace of mind, ensuring they make an informed decision about the property’s condition.
6. Approximately 90% of home buyers include an inspection contingency in their purchase contracts.
7. House inspection contingencies average result in a negotiation of at least $5,000 off the asking price.
8. Over 95% of inspections uncover at least one issue that requires repair or attention.
9. Homes with a clean inspection report have been found to sell for 15% higher than those with significant issues discovered during the examination.
What is a Home Inspection Contingency?
A home inspection contingency is language in an offer to purchase real estate that gives a potential buyer the right to inspect a property.
The home inspection contingency is frequently used in purchase contracts to protect the buyer. The contingency clause allows a buyer to ensure the home is in good condition before purchasing.
If the home inspectors find significant problems with the home, you can walk away from the purchase contract with your earnest deposit money. The issues with the house should be reasonably substantial to break the contract instead of negotiating with the seller for a resolution.
An inspection contingency is still essential when buying a new home. With new construction, home inspectors will inspect the foundations before they are poured, check the structure before the drywall is laid, and perform a full inspection when the home is completed.
However, these are city officials, so they might not be as thorough. Getting an independent home inspection with new construction could be worth it.
Remember that a builder will unlikely allow a home inspection contingency with the ability to terminate a sale. Nobody will agree to custom-build a home with the opportunity to cancel. However, you could use the inspection to create a punch list and learn more about the property.
What Are The Benefits?
A professional examination allows you to discover potential large and small issues. Inspections are also a great educational experience, allowing you to learn about the inner workings of the property you buy.
If significant problems are discovered, you can terminate and find a better property.
What Does The Contingency Wording Look Like?
The contingency clause is part of a real estate contract. A home inspection contingency addendum typically states the buyer’s ability to conduct a professional home inspection.
The home inspection contingency wording states that the buyer has specific days to conduct the inspection. Usually, the contingency period is between 7 and 10 days from the date an offer to purchase is executed. Some refer to this as the home inspection contingency timeline.
Home inspection contingency addendums also stipulate a time frame for the buyer to respond to the seller after the conclusion of the inspection. The agreed-upon time frame for a response is usually 24-48 hours from when the buyer receives the inspection report.
Some addendums will also have a dollar amount where the buyer can terminate the sale and get their earnest deposit money back.
For example, the contingency clause might say that if it is determined that more than $1000 in defects were discovered during the inspection, the buyer can terminate the contract.
Some in the real estate industry refer to the home inspection timeline as the due diligence period. Besides the inspection, a buyer should research the history of the house.
Home Inspection Contingency Example
Remember that the home inspection contingency clause will differ from state to state.
The wording here will give you a general understanding of what you’ll see in a typical home inspection contingency addendum.</p>
“Buyer’s obligations under this agreement are subject to buyer’s inspection of the Property. Buyer shall have the right to inspect the Property within seven days of the accepted offer.
Suppose the buyer is unsatisfied with the property’s condition after an inspection. In that case, they will notify the seller of the unsatisfactory conditions within 24 hours of receiving the inspection report and request that the seller remedy them.
If the seller and buyer cannot agree on the unsatisfactory conditions, the buyer may terminate the sale or decide to proceed as-is.
Quite often, home inspections are negotiated between buyer and seller. Sometimes, a seller agrees to make some repairs; other times, they offer the buyer a seller’s concession.
In hot seller’s real estate markets, sellers can often get away with doing nothing. In a buyer’s market, it is not unusual for there to be concessions.
What Happens if The Contingency Expires?
Buyers must respond promptly to the home inspection contingency clause timeline or risk losing deposit money. When an inspection contingency clause expires, a buyer can no longer use it to escape the contract.
In this circumstance, a seller could keep the buyer’s earnest money deposit. Potential buyers should follow contingency deadlines so their deposit is not at risk.
Make sure you mark the end of the inspection period on your calendar.
Is Removing The Contingency A Good Idea?
In real estate markets that favor sellers, it is not unusual for a buyer to remove their home inspection contingency. Waiving a property inspection contingency makes an offer far more attractive.
It is one less worry off of the seller’s plate. Many home sales fall through during the inspection contingency period. With the contingency for a home inspection gone, sellers can breathe relief, especially when the property is not in great shape.
When bidding wars exist on houses, waiving home inspection contingencies becomes commonplace.</p>
What About The Appraisal Contingency?
An appraisal contingency works hand in hand with a house inspection contingency to protect the buyer’s interests.
While the home inspection focuses on the property’s condition, the appraisal contingency ensures the home’s market value aligns with the agreed-upon sale price. This is essential for securing financing. Mortgage lenders typically require an appraisal to confirm the home’s value before approving a mortgage.
If the appraisal is lower than the sale price, the buyer has the leverage to renegotiate the price or walk away from the deal with their earnest money. Understanding the interplay between these contingencies allows buyers to confidently move through the purchasing process and ensure they make a sound financial decision.
What Do The Inspections Check?
Knowing what the inspector will do is vital now that you understand the importance of a home inspection contingency.
<p>Home inspectors examine the property for defects and potential problems. This process can take 2 or 3 hours, and you can be present during it to ask questions and fully understand any issues the inspector finds.
If you attend the inspection, you can ask about anything you do not fully understand and confirm what they check within the home. When you notice something that appears wrong with the property, you can ask the home inspector for an opinion.
If the inspector finds an issue, you can ask them more about it and whether you should be concerned about it. When you don’t know how something in the home works, like the HVAC controls, you can ask.
There Will Be an Inspection Report Provided
The inspector will produce a report detailing what they found and the property’s condition. While this might include a description and photos of any problems discovered, it doesn’t match having a first-hand explanation from the inspector during the process.
The home inspection report should include the following info:
- Categorize problems as either minor defects, significant issues, or safety problems
- State whether things should be repaired or replaced
- Highlight items that might be alright for now but could need replacement soon
The inspector might also explain the required maintenance routines on certain items. This will help you avoid potential problems if you are a first-time buyer.
The inspection results should give a home buyer a good understanding of the property they are purchasing.
The Importance of Specialized Inspections
While a general home inspection provides a broad overview of a property’s condition, specialized inspections examine areas that could pose significant risks or expenses. For instance, I recommend my clients get a pest inspection. It can reveal hidden termite or carpenter ant damage that compromises the home’s structural integrity.
I also recommend testing for radon. This colorless and odorless gas can cause lung cancer and is prominent in certain regions. Though additional expenses, these specialized inspections can uncover issues that a general home inspection might not. They offer buyers a deeper understanding of potential investments or necessary repairs.
Another example would be a pool inspection to see if the property has a swimming pool.
Buyers ensure they make informed decisions about their potential new home by incorporating specialized inspections into the due diligence process.
Home Inspection Checklist
Home inspectors examine many different things inside and outside the home. Exactly what they look at will depend on the house, but to give you a rough idea, we’ll look at their primary considerations.
The Exterior
The home inspection should find any damage to the exterior of the property. Checks will look for damage, cracks in the siding, and missing sections. They will also ensure the soil isn’t too high, so it is touching or close to parts of the home it shouldn’t, which can cause the wood to rot or allow pests to attack the house.
Despite this, home inspectors are not specialists in termites and similar damage and might not even specifically check for them.
If there are signs of pest damage or concerns, you may need to bring in a specialist inspector.
Foundations
Most of the time, it is impossible to look directly at the foundations to check for problems. However, they can look for evidence of issues with the foundations. If there are cracks in walls or evidence of settling, this could mean problems with the foundations.
Grading
The inspection should make sure that the yard slopes away from the home. If the grading doesn’t do this, it could mean water damage is being done to the property. This can be corrected by correcting the slope or improving the drainage.
Garages
Does the garage door work correctly? Are there any problems with the framing in the garage? Is there enough ventilation? Garages need some ventilation to prevent carbon monoxide poisoning.
A water heater in the garage must be fitted high enough off the ground to limit the chance of an explosion from gasoline fumes igniting it.
Roof
The inspector will look for problems that allow water to enter the home through the roof, such as missing or damaged shingles or gutters that haven’t been correctly fitted or require repair.
Inspecting Inside The Property
The inspector will carefully check the inside of the home. They will check every room to try and uncover problems.
Electrical Systems
The type of electrical wiring used in the property will be checked, and the outlets will be tested. The outlets will be checked to ensure they will not start a fire. The electrical panel in the home will also be looked at for safety issues.
The inspector will ensure that the ground fault circuit interrupters work and protect you against electric shock in bathrooms, the kitchen, and other home areas.
HVAC
The inspector will judge the age of the HVAC systems in the home and ensure they function. If the air conditioning unit or the furnace shows their age, they might be closer to the end of their useful life.
If these systems need replacing, it will be a considerable expense not long after you move into the home. Repairs and maintenance might also be recommended.
The inspector will also check the home’s ducting, check for leaks, and assess its age. The report should also inform you whether there is sufficient insulation in the house and if there is a risk of asbestos being present.
Plumbing
Any leaks in the plumbing could be causing a lot of damage to the property. They will check for visible leaks, ensuring the faucets and showers work correctly. The location of the shutoff valve should also be mentioned in the home inspection report.
The water pressure will also be tested, and the pipework will be examined. If the pipework in the home appears to be old, further and more detailed inspections might be required.
Water Heaters
The age and condition of the water heater will be assessed. Has it been correctly installed? The report should indicate how long it will be before you replace the water heater and any maintenance that might be required.
Bathrooms
Many bathroom problems could be included in the inspector’s report. Signs of leaking water, lack of ventilation, and mold can cause problems over time.
Appliances
Checks on kitchen appliances should show if they are working as expected. However, these might not be applied to every appliance in the kitchen. Ask your inspector so that you are sure which appliances have not been checked by them and can check them yourself.
Laundry Room
Does the laundry room have sufficient ventilation? If the dryer’s exhaust system is poorly maintained, it could be a fire hazard.
Fire Risk
The inspection should include smoke detector tests. If a garage is attached to the house, it needs to have a proper fire rating to prevent a fire in the garage from spreading. The inspector will look for damage to the wall that might compromise its fire protection properties.
Things That The Inspection Doesn’t Cover
While your home inspector will cover a lot of potential problems, they can’t check absolutely everything. Some things wrong with the home could be hidden from the inspector.
If there are cracks in the foundations that cannot be seen, and if there aren’t any signs in the home of this problem, it could be missed.
Home inspectors don’t start dismantling the home to look for problems. This means some home regions will not be checked and could hide substantial defects.
Inspectors do not check areas including:
- Inside pipes or sewers
- Inside walls
- Inside chimneys
- Under floors
While inspectors will do their best to highlight the home’s problems and how bad they are, they aren’t typically specialists.
This means that while they might notice a problem with the plumbing or find some signs of a pest infestation, they might not be able to reveal the full extent of the problem.
You Might Need Other Home Inspection Experts
If the inspector finds a potentially serious problem, they will likely suggest you bring in an expert to confirm it and give you a better assessment. It will mean spending extra money on further inspections, but this will give you a better understanding of the problem and what it will cost to fix.
There are many things that home inspections do not generally test or check for. If the inspector suspects a problem, it will be mentioned in the report, and you could be advised to get a specialist inspection. Issues that fall into this category include:
- Asbestos
- Radon
- Mold
- Well inspection
- Pest inspection
- Termite damage
- Contamination
Sometimes, home inspectors will also offer radon testing, which will be an additional cost.
If the home has problems that aren’t visually obvious, they will likely go unnoticed. This can mean issues appear after purchasing the house, but you can expect only so much from a home inspection.
Real-World Experience With Septic Systems
Aaron Farr of Farr Group NW provided insightful advice.
“The additional inspection, whether radon, pest, or septic, if recommended, is essential. Take the example of a buyer I had purchasing a home with a septic system. During the standard inspection, a professional septic company recommended an additional inspection on the septic. The seller promised the septic had recently been pumped, but I suggested spending $300 on the inspection. The buyer was already short on funds and declined, trusting the seller.
Fast forward three months, when the septic started seeping into the yard, I came to find out the tank had never been pumped and was so damaged that the entire septic needed replacing to the tune of $30,000. Had they just spent the $300 in the first place, they probably wouldn’t have purchased the property or at least would have had the seller handle the replacement.
Always get the additional inspection if recommended. Yes, it’s more expensive but could save you thousands.”
Agent Experiences With Radon
Jerry Hendriks of Hendriks Real Estate Team shares this expert tip,
“Radon is no joke. There are many places in the country where radon is not an issue, but in other places, it can be an extreme concern. Some home inspectors may not have the resources to test for radon, but if you are buying in a location where this is a concern, it’s best to take the time and funds to have an additional inspection.
Just recently, we did an additional radon inspection and found levels 10x higher than what a human should be breathing. The buyers were worried about losing the deal, but here’s the thing: once the seller knows, they must reveal this on most sellers’ disclosure forms so future buyers would understand and probably request the remediation anyway since it’s a hazardous situation.
We submitted the request, and because we paid full price, the seller didn’t hesitate to correct the situation with a beautiful radon mitigation system that they paid for. It truly pays to have that additional inspection, both financially and for emotional and physical health.”
There May Be Further Negotiations
When the home inspection has been completed and you have the report, you have some choices about moving forward. Finding a home inspection report without problems would be very unusual, even with newly constructed homes.
<p>If the home inspector finds severe problems with the property, the home inspection contingency gives you a way out of the offer you’ve made. Without a contingency in your purchase contract, you could lose your deposit.
A problem that’s too serious, perhaps structural, or otherwise costly to repair might not be possible for the seller to fix. No matter how much you might have wanted to buy the property, the home inspection contingency lets you out of your legally binding contract.
<p>This might give you just seven days to decide to back out of the purchase with your earnest money returned.
Options For Negotiating
For less severe problems, home inspection negotiations with the seller should come to some arrangement. A few different outcomes can happen:
- The seller might fix the issues themself
- Hire a contractor to do the repair work
- They will offer a cash credit
- A reduction in the purchase price
The cash credit should cover the repairs to fix the problem, which will be paid at closing.
There are some situations where these options aren’t possible. If you are buying a home that is sold as-is or the property has gone through foreclosure and is bank-owned, the repairs will be your responsibility.
In those situations, you can use the home inspection report to plan your repairs and decide whether you can afford to purchase the property.
Just because the home inspection report shows severe defects with the property, there isn’t a legal requirement to fix all of the problems. However, you might find getting the financing you need challenging if the home has specific issues. Structural issues or electrical faults could cause your mortgage lender to refuse funding.
Writing a Counter Offer Following a Property Inspection
A counteroffer can be written if you find things that need to be addressed before you can continue with the purchase. Your real estate agent can then begin negotiations with the seller or agent to repair the problems.
Another option is to ask the seller to lower the price based on the cost of repairs. Contract quotes can be used to write a counteroffer, reducing the purchase price by the cost of repairs. If the seller agrees, it will be up to you to deal with the repairs after closing.
Are House Inspections Worth the Cost?
Hiring home inspectors can cost as much as $1000, depending on your location and the size of the property you are buying. If you need a specialist inspection, this cost will increase further. The house’s square footage is a significant factor in the home inspection pricing. But is this expense worth it?
The inspection is crucial in purchasing a home, and often, the lender doesn’t approve your mortgage without it. Aside from that, buying a home is a long-term commitment that you will be paying off for many years, so ensuring you’re making the right decision is very important.
The home inspection could reveal problems that might be life-threatening. For example, there could be faulty wiring in the home, but without the inspection, you wouldn’t know about it until it’s too late.
The cost of a home inspection is well worth the investment, considering the amount of money you pay for a home!Click To TweetKeeping The Inspections in Perspective
While the inspection is essential, relying too much on the report is easy. You should expect the report to find problems with the home but not worry too much about minor issues.
Demanding that the seller fix every problem in the home isn’t reasonable, for instance. There will be repairs that don’t need to be addressed immediately and are regular maintenance issues you will face as a homeowner.
You also shouldn’t use the inspection as your main reason for buying or not buying the home. You might be able to fix problems as part of your home renovation, and the inspection might give you a better understanding of what needs to be done.
Other Real Estate Contingencies
The fewer contingencies home buyers have in the purchase agreement, the better it will be for a home seller. However, most real estate transactions have some contingency clauses. The most common you will see are as follows:
- Appraisal contingency
- Mortgage contingency
- Home sale contingency
Contingent offers are less likely to be accepted in a competitive market that favors sellers. Keep this in mind when writing a purchase offer. If you are in a bidding war or up against a cash offer, it will be harder to land the house with many contingencies.
Final Thoughts
The home inspection is a crucial part of the purchase contract that protects buyers, preventing them from losing out should there be many problems. Though the cost is an expense you can sometimes avoid, doing so might not be the best option in the long run.
The home inspection contingency gives you a way out of making an unwise purchase without losing your earnest money. It is even necessary when you’re buying a new construction. For a first-time buyer, the inspections give you information on maintenance and things in the property that you will need to address.
It has the potential to save you many thousands of dollars by allowing you to deal with problems early on. However, home inspectors can’t see everything that could go wrong with the home.
Even if serious issues aren’t found, don’t be surprised if problems with your home happen at some point. A professional inspection is always in your best interest and will give you peace of mind that you’re not buying a lemon.
About the Author: The above Real Estate information on what a home inspection contingency is was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
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