November 26, 2022

Lefteriverse

Professional Real Estate Experts

What is it and How Does it Work?

What is a Home Inspection Contingency

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 you have a home inspection contingency in your purchase contract, you have some protection if the inspector finds some severe issues with the property. 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.

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 continuing with the purchase.

If the home inspectors find major 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 significant to break the contract instead of negotiating with the seller for a resolution.

An inspection contingency is still essential when buying a new construction home. With new construction, home inspectors will look at the foundations before they are poured, check the structure before the drywall is laid, as well as 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.

Keep in mind that it is unlikely that a builder will 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.

Home Inspection Contingency Wording

The home inspection contingency clause is part of a real estate contract. Typically, a home inspection contingency addendum will explicitly state the buyer’s ability to conduct a professional home inspection on the property.

The home inspection contingency wording will state the buyer has a specific number of days to conduct the inspection. Usually, the home inspection contingency period is between 7-10 days from when an offer to purchase is executed. Some refer to this as the home inspection contingency timeline.

Home inspection contingency addendums also have a time in which the buyer must 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 home inspection contingency addendums will also have a dollar amount in which the buyer can terminate the sale and get their earnest deposit money back.

For example, the contingency clause might say if it’s determined there are more than $1000 in defects discovered during the inspection, the buyer can terminate.

Some in the real estate industry will 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

Home Inspection Contingency Example

Here is an example of a home inspection contingency. 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.

“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, at the buyer’s sole discretion, they may terminate the sale or decide to proceed as-is.”

Quite often, home inspections are negotiated between buyer and seller. Sometimes a seller will agree to make some repairs, and other times they will 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 Home Inspection Contingency Expires?

Buyers must ensure they respond promptly to the home inspection contingency clause timeline or risk losing their deposit monies. When an inspection contingency clause expires, a buyer can no longer use it as a means of escaping the contract.

In this circumstance, a seller could keep the buyer’s earnest money deposit. It is a good idea for potential buyers to follow contingency deadlines, so their deposit is not at risk.

Make sure you mark in your calendar the end of the inspection period.

Home Inspection Contingency Removal

In real estate markets that favor sellers, it is not unusual for a buyer to remove their home inspection contingency. Waiving a home 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 home 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.

What Do Home Inspections Check?

Now that you understand the importance of a home inspection contingency, it’s vital to know what the home inspector will be doing.

Home inspectors will examine the property to check for defects and potential problems. This process can take 2 or 3 hours, and you can be present during the inspection 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 are checking within the home. When you notice something that appears wrong with the property, you can take the opportunity to ask the home inspector’s opinion.

If the inspector finds an issue, you can ask them more about it and if it is something you should be concerned about. When you don’t know how something in the home works, like the HVAC controls, you have an opportunity to ask.

There Will Be a Home 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 isn’t going to match having a first-hand explanation from the inspector during the process.

The home inspection report should include the following info:

  1. Categorize problems as either minor defects, major issues, or safety problems
  2. State whether things should be repaired or replaced
  3. 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.

Home Inspection Checklist

Home Inspection Checklist

Home inspectors will look at many different things inside and outside the home. Exactly what they look at will depend on the particular home, 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 home.

Despite this, home inspectors are not specialists in termites and similar damage, and they might not even specifically check for them.

If there are signs of pest damage or if you have any concerns, you may need to bring in a specialist inspector.

Foundations

Most of the time isn’t going to be possible 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.

If there is a water heater in the garage, it needs to be fitted high enough off the ground. This limits the chance of explosion from gasoline fumes igniting the water heater.

Roof

The inspector will look for problems that allow water to enter the home through the roof. There could be missing or damaged shingles; perhaps the gutters 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 tested. Checks will be made to the outlets, ensuring 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 are working 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 mean a considerable expense not long after you’ve moved into the home. Repairs and maintenance might also be recommended.

The inspector will also check the home’s ducting, checking for leaks and assessing its age. The report should also give you information about whether there is sufficient insulation in the home 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 are working 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 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

There are many problems in bathrooms that could find their way into the inspector’s report. Signs of leaking water, lack of ventilation, and mold can cause bathroom problems over time.

Appliances

Checks on kitchen appliances should show if they are working as expected. However, these might not be conducted on every appliance in the kitchen. Ask your inspector so that you are sure which appliances are not checked by them and can check them yourself.

Laundry Room

Does the laundry room have sufficient ventilation? If the exhaust system for the dryer has not been well 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 Home Inspection Doesn’t Cover

Things a Home Inspection Doesn

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 all of the problems with the home and how bad those issues are, they aren’t typically specialists.

This means that while they might notice a problem with the plumbing or find some signs that there is 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 that there is 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:

Sometimes home inspectors will also offer radon testing, which will be an additional cost.

If the home has problems that aren’t visually obvious, it is likely to go unnoticed. This can mean problems appear after purchasing the home, but there is only so much you can expect from a home inspection.

Following the Inspection, 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 free of problems would be very unusual, even with newly constructed homes.

If the home inspector found some very serious problems with the property, the home inspection contingency gives you a way out of the offer you’ve made. If you don’t have a home inspection contingency in your purchase contract, you could face losing your deposit.

A problem that’s too serious, perhaps structural, or otherwise very expensive 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.

This might give you just 7 days to decide to back out of the purchase with your earnest money returned.

Options For Negotiating Home Inspections

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 problems 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, and this will be paid at closing.

There are some situations where these options aren’t going to be possible. If you are buying a home that is sold as-is, or if the property has gone through foreclosure and is bank owned, the repairs will be down to you.

In those situations, you can use the home inspection report to plan your repairs and decide whether you can really afford to purchase the property.

Just because the home inspection report shows serious defects with the property, there isn’t a legal requirement to fix all of the problems. However, you might find it challenging to get the financing you need if the home has specific issues. Things like structural issues or electrical faults could cause your mortgage lender to refuse your financing.

Writing a Counter Offer Following a Home Inspection

If things are found that need to be addressed before you can continue with the purchase, a counteroffer can be written. Your real estate agent can 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 Home Inspections Really Worth the Cost?

Hiring home inspectors costs as much as $1000, depending on your location and the size of the property you are buying. And 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 really worth it?

The inspection is very important 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. 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 Tweet

Keeping House Inspections in Perspective

While the inspection is essential, it is easy to rely on the report too much. You should expect the report to find problems with the home but not worry too much about minor issues.

Demanding that the seller fixes every problem in the home isn’t reasonable, for instance. There will be repairs that don’t need to immediately be addressed 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, with the inspection giving you more of an 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:

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 the home inspection find 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 home purchase without losing your earnest money. An inspection is even necessary when you’re buying a new construction. And for a first-time buyer, the home inspection gives you information on maintenance and things in the property that you will need to address.

The home inspection 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 is potentially 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 is a home inspection contingency is provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for 36+ Years.

Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!

I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.

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Home Inspection Contingency: What is it and How Does it Work?

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Home Inspection Contingency: What is it and How Does it Work?

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A home inspection contingency gives you the right to back out of a home purchase when undesirable problems are discovered.

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Bill Gassett

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Maximum Real Estate Exposure

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