Home Inspection Contingency 101

In real estate, a contingency is any clause in the purchase offer that gives the buyer a way to back out if certain requirements aren’t met. There are many types of contingencies used in home sales all covering different circumstances to protect the buyer’s best interest. The most common type of contingency is a home inspection contingency, which makes the buyer’s offer dependent on the results of a home inspection. Here we’ll go over the basics of this type of contingency for a better understanding of how they work and what they cover.

What Is an Inspection Contingency?

Inspections are a necessary part of every home sale. With an inspection contingency in the purchase contract, the buyer has the flexibility and right to walk away if things aren’t to their liking. If the results of a home inspection don’t meet your requirements you may negotiate repair costs or cancel the sale all together. The details of how to handle contingencies vary based on local laws.

If a home is on the market listed as “contingent” it means that there is a deal in progress but it’s depending on the outcome of the inspection (or other included contingency). The contract isn’t binding until all parties have confirmation that they have met the contingency terms.

How Do Inspection Contingencies Work?

The entire process begins with the home inspection itself. The property has a thorough visual inspection by a licensed professional chosen by the buyer or sometimes the bank or mortgage lender. A report from the inspection will determine what happens next in the home sale.

Sometimes, if the initial inspector finds something that could be a sign of more serious problems, they might recommend a second inspection by a specialist. A great example of this would be low water pressure either caused by corroded pipes or intrusive tree roots. Both potential causes would require a more specific type of inspection to determine.

Some of the other issues that might require a second opinion include electrical systems, roof condition, foundation repair, asbestos, mold and pests like termites. Finding and hiring an inspector for specific issues is something your real estate agent can help you with. Usually they can coordinate directly with the inspector and the seller without you having to get involved in the logistics.

Contingency Release

Contingency clauses always include a deadline called a release date. The home inspection process has to happen before that date or else the buyer loses their right to cancel the transaction. Sometimes you can change the release date to allow for more time if the contract has terms allowing it. Because the contingency clause is only valid for a limited amount of time, it’s crucial to act quickly on things like requesting repairs or negotiating some other alternative with the seller.

Purchase contracts are complicated and one of the many reasons it’s wise to hire a real estate agent to help. Being able to understand and navigate important clauses like contingencies in your contract might make or break a deal. The more you can prepare for the possibility of extra inspections, the easier it will be to handle everything within the required time period.