There are many stages in the home-buying process that must be handled correctly if you want everything to go smoothly. Once your offer is accepted by the seller, the closing process will begin. During closing, everything from the home appraisal to the underwriting process will take place. A home inspection will also occur, which allows you to determine if there are any major issues with the home that have yet to be disclosed.
When you’re attempting to purchase a home in a competitive market, you might be thinking about skipping the home inspection to make your offer more appealing to sellers. However, you should understand what a home inspection entails and why it’s important before you waive it. In this guide, you’ll learn all there is to know about home inspection contingency clauses.
What Is The Home Inspection Contingency?
Home inspection contingencies mandate that the buyer’s offer is wholly contingent on the final result of the inspection. When this contingency is placed in the contract, the homeowner will have a period of 7-10 days to respond to any issues or objections that are found with the the inspection. The buyer will use the inspection report to determine if they should go forward with the transaction.
The rules surrounding home inspection contingencies differ with each state, which is why you should discuss this process with your real estate agent. Make sure that you’re adhering to all of the guidelines about home inspection contingencies before you purchase the home.
This type of contingency gives you protection in the event that substantial problems arise. While you could back out of the deal entirely because of these issues, you could also request that the seller lower the purchase price or make some repairs before closing day. If you decide to walk away from the deal, you’ll get your earnest money deposit back.
How Does The Inspection Contingency Work?
Inspection contingencies provide the buyer with the right to have a home inspection within a set time period. The findings of the report dictate how the buyer can respond.
Along with detailing how long the buyer has to raise objections with the findings, inspection contingencies usually detail what will occur if the buyer has issues that must be addressed. As mentioned previously, sellers will usually be given around 7-10 days to respond to any requests to reduce the sale price or make repairs.
Home inspections are comprehensive examinations of a home that are performed by a licensed inspector. The report that’s compiled following an inspection will contain extensive details of nearly every facet of the home, which the buyer can use to better understand the home’s current condition. The various aspects of a property that the inspector will review include the:
- HVAC system
- Roofing materials
- Structural components
- Electrical system
Real Estate Contingency
Real estate contingencies are contract clauses that provide conditions that need to be met before the deal can proceed. An inspection contingency is just one type of real estate contingency that allows buyers to back out of a transaction if specific conditions occur. When a contingency is in place, the buyer can step away from the deal without losing their earnest money deposit. The different types of real estate contingencies include:
- Inspection contingency
- Appraisal contingency
- Funding contingency
- Sale contingency
What Does The Home Inspection Cover?
The home inspection you order will focus on the home’s appliances, major systems, and structure to determine what their condition is. The time it takes for an inspection to be completed depends on the size of the home and the number of issues that are identified.
However, most inspections take around 2-4 hours to finish. When purchasing a home, you should be there when the inspection takes place. You’ll have the opportunity to ask numerous questions with the professional who’s performing the inspection.
The final report will come with the inspector’s opinion of the home’s condition alongside recommendations and photographs. Every issue that’s identified by the inspector should have a specific status attached to it, which could involve safety issues, minor defect, or major defect.
The inspector will also recommend repairs or replacements for systems and appliances that are no longer functioning properly. Additional recommendations will be provided for repairs that require regular maintenance or immediate attention.
Every facet of the home’s exterior will be inspected, which extends to attics, additions, and crawlspaces. The inspector will search for missing or damaged siding as well as cracks in the exterior walls. The soil around this home will be checked to make sure that there aren’t any pests or leaks present.
As for the foundation, professional inspectors typically search for areas around the foundation that have poor grading or dips in the soil. Reputable inspectors will also search for separations and cracks in the foundation before recommending the best course of action.
When an inspector checks the home’s roof, they will look for any signs of poorly installed shingles or cracked shingles. If numerous shingles are missing from the roof, there’s a good chance that water can get into the home without any forewarning.
Home inspectors also test garage doors to make sure that they operate properly. Any noises during operation will be noted in the report. The framing is checked as well to ensure that the gap is correctly sealed to keep water intrusion at bay.
Inspectors perform comprehensive interior inspections, which involve everything from checking the water pressure in bathrooms to inspecting the electrical system. When looking at electrical systems, inspectors first focus on identifying what type of wiring is located in the home. All outlets will be tested to make sure that they’re operational.
As for the HVAC system, the inspector you hire will identify the age, type, and size of the HVAC unit that’s located in the home. While inspecting the unit, the inspector will test every setting. All of the ducts that connect to the HVAC unit will be inspected to determine if leaks are present or debris is blocking the airflow.
When an inspector looks at the home’s plumbing, they will start by finding out what kinds of pipes have been installed around the home. They will also check water pressure for all showers and faucets. If any leaks or other plumbing issues are detected, these problems will be thoroughly detailed in the report. Consider asking your inspector where the water shut-off devices are positioned.
Fire safety is another primary area of concern among inspectors. The one you hire should check all carbon monoxide and smoke detectors in the home to make sure that they’re in good working condition.
If a garage is attached to the home, the inspector will make sure that the connecting wall has maintained its fire rating and remains in good condition. A few additional areas of focus for the inspector include the laundry room ventilation, major appliances, and water heater.
How To Manage The Results Of The Home Inspection
There are two ways you can look at inspection results, which include fixable issues and significant issues.
If there are some areas of concern that the inspector places in their report, you can request that the seller fixes these problems, lowers the purchase price, or provides you with a cash credit upon closing. Let’s say that the home inspector you hire finds evidence of previous termite damage. You could then ask for a pest inspection to make sure that an active infestation isn’t in place. The most common issues that are easy to fix include:
- A malfunctioning GFCI outlet
- An older fixture or two
- A poor window seal
- Cosmetic yard issues
Once you’re in the closing process, this doesn’t mean that the completion of the transaction is guaranteed. When major problems are discovered during a home inspection, you may eventually need to back out of the deal if the owner is unwilling to reduce the price or the problems are too costly to fix.
Let’s say that mold growth has been discovered in the home that you’ve made an offer on. When you receive an estimate for mold remediation services, you might find that the project will cost upwards of $10,000 and take longer than a month to complete.
In this scenario, you could choose to ask the seller to reduce the sale price or give you a credit. However, waiting for these repairs to be made might not be worth the hassle. You could then claim the inspection contingency to back out of the deal. Some of the more significant issues that can be discovered in a home inspection include:
- Extensive water damage
- Serious foundation problems that worsen the home’s structural integrity
- Damage to roofing materials
- Faulty electrical wiring
- Old and inefficient plumbing
- Malfunctioning HVAC systems
Pros and Cons of Inspection Contingencies
There is an upside and a downside to inspection contingencies that you should know about before buying a home.
Pro: It Protects Your Deposit and Gives You More Flexibility
Home inspection contingencies provide buyers with additional flexibility when it comes time to negotiate before signing a contract. You’ll also have an exit strategy in place if the inspection discovers major issues that dissuade you from going through with the purchase.
Cons: It Could Make Your Offer Less Attractive to the Seller
The main downside to placing a home inspection contingency in a contract is that it could be more difficult for you to get your offer accepted when the real estate market is competitive. The existence of contingencies may make your offer less appealing to the homeowner. These contingencies make a transaction more complicated for the seller, which might work against you when the seller has received multiple offers.
Home inspection contingencies have their advantages and disadvantages. If the market isn’t extremely competitive, placing a contingency in the contract can give you peace of mind that you won’t need to go through with a purchase if the inspection finds several major problems with the home. Before signing any contract, you should be comfortable with all of the clauses and language contained within.