The Home Inspection Contingency Clause Explained

In a competitive housing market, you can get caught up in the excitement of finally finding the house that’s right for you. After all, deals are often based on good faith. You may be tempted to skip a home inspection or waive the right to do anything about the findings. However, keeping an inspection contingency in the purchase agreement is key to protecting your rights.

In this article, we’ll go over what a home inspection contingency is, how it works and how and when you might want to waive it. You’ll get a better idea of how to look out for your own interests when buying a home.

What Is A Home Inspection Contingency?

An inspection contingency requires a professional home inspection within a certain time frame before a real estate contract can become binding. It ensures that the buyer receives vital information and allows them to negotiate repairs, sale price, or even walk away with their earnest money altogether.

How Long Do Home Buyers Have For The Inspection Period? 

You and the seller should agree and get in writing the window of time you will need to have an inspection completed and written up. This is generally the same limit on time the buyer has to notify the seller of any renegotiations or repairs they would like based on the inspection – or if they would like to back out of the sale after seeing the inspection results.

The inspection itself typically only takes a few hours, though it could be a longer process for a large home. The time it takes to get your results back from the inspector varies, but many will deliver your report 24-48 hours after the inspection.

Why Are Home Inspection Contingencies Important For Buyers?

Being able to make a contingent offer on a home provides a buyer important protection and negotiating leverage. It enables you to walk away from the home sale if you have certain predefined deal breakers in your purchase agreement. We’ll touch on a few of the other contingencies below, but first let’s go over the basics of home inspection very briefly.

A home inspection involves hiring a real estate professional to go through a home and give buyers a report on its condition. A standard inspection will go over the home’s structure, appliances and major systems to make sure that everything is working. This includes checking out your foundation, roof and attic, major appliances, electrical, plumbing and HVAC systems. You can check out our home inspection checklist to see a full list of what a home inspection should cover.

You can also get specialized inspections like pest, chimney and water/sewer inspections at an extra cost. You should get these completed in the same window as your home inspection if you want them done.

What Are Some Challenges Of Inspection Contingencies? 

Home inspection contingencies are designed to protect home buyers, but that doesn’t mean they don’t have potential downsides. One of the most common challenges that home buyers run into with inspection contingencies is the timeline.

It can sometimes be challenging to schedule a home inspection by the deadline negotiated with the seller. When scheduling difficulties arise, buyers have to decide if they want to move forward or not before the inspection is performed – or try to extend the deadline with their seller.

How Inspection Contingencies Work

In order to give an overview of how inspection contingencies work, let’s just start with the best-case scenario. In this version, the buyer’s inspector doesn’t find any major problems with the house – or at least none that the buyer isn’t willing to overlook and fix themselves.

In this case, there are still three steps that need to be taken before the sale can be completed. If you’re getting a mortgage, an appraisal of the property will be required. Your home serves as collateral for the loan and a lender can’t give you more than the home is worth. If you agree to a price and the appraisal comes in low, you might have to bring the difference to the closing, renegotiate or walk away.

In order to avoid this, you might put in an appraisal contingency. These are typically structured to say that you won’t pay more than the appraised value or the appraised value plus a defined amount.

Once the home inspection and appraisal are done and all the paperwork is in, you’ll typically get to do a final walkthrough around closing day. This allows you to make sure the home is in the condition you anticipated.

Finally, you’ll get to close on the house. This is where you get to sign a lot of legal documents and get the keys.

Of course, not everyone’s process goes that smoothly, and so let’s see how a home inspection contingency can help in the event that there are problems with the home that need to be corrected.

Buyer Requests Further Negotiations

In addition to laying out the amount of time a buyer has to get an inspection done and raise objections, a good inspection contingency should outline what happens when the buyer does wish to raise issues. Typical contingency clauses will give sellers a certain number of days from the time the request is given to agree to make repairs or lower the sales price in compensation.

In the event that the seller doesn’t agree to make repairs or lower the price, the buyers are then given a certain number of days to decide whether to waive the contingency and buy the property as is or back out of the contract.

In the event that the seller chooses to make repairs, the buyers should take the opportunity at the final walkthrough to make sure these repairs are completed to their satisfaction. This is the final opportunity they’ll have to rectify anything before closing.

Buyer Disapproves

Most of these clauses have language in there about a satisfactory inspection. “Satisfactory” gives buyers a lot of latitude. This means that if a buyer finds something that’s going to be an issue and the seller won’t fix it or lower the price, the buyer can back out of the deal.

The benefit of having a home inspection contingency at this point is that backing out pursuant to the clause allows you to get your earnest money deposit back. Depending on where you live, this is often a percentage of the purchase price, so the deposit may be significant.

How And When To Waive An Inspection Contingency

While never required, it’s always a good idea for home buyers to get a home inspection. If nothing else, you get an idea of the shape the house is currently in and what to look out for in the future. However, there’s nothing that says you need to act on it.

There are instances in which waiving a home inspection contingency can be to your advantage. Sellers want certainty, too. If they can be more certain your offer is likely to get to the closing table because there are fewer contingencies attached, it could give you an advantage in a multiple-bid situation.

It’s important to realize that if you do this, you’re then on the hook for any repairs that need to be completed. You need to decide whether the house is worth whatever additional investment might be needed in repairs if you waive this contingency.

Alternatives To Waiving The Inspection Contingency 

If you like a house in a competitive market and don’t want to give up your inspection contingency, there are other things you can do to sweeten your offer, like paying a certain amount above the appraised value or offering to pay for all or a portion of the closing costs typically paid by sellers, such as real estate agent commission.

The Bottom Line

A home inspection contingency gives you the right to schedule a home inspection prior to close as a condition of the purchase agreement. You can also use it to potentially negotiate a lower price or have repairs completed based on the findings. If big problems are uncovered, an inspection also gives you some time to determine whether you want to buy the house as is or void the deal and get your earnest money deposit back.

Now that you understand inspection contingencies, you can have that much more confidence getting ready to buy a house. If you feel ready to begin the home buying process, start the preapproval process today with Quicken Loans.