A guide to the home inspection contingency

Key takeaways:

• A home inspection contingency protects a buyer from purchasing a house that may require expensive repairs or pose safety hazards.
• The buyer and seller will agree to a specific timeline, typically giving the buyer 1 – 2 weeks to make final decisions after the inspection.
• Home inspections aren’t always required but allow the buyer to renegotiate the price or walk away from the sale if they have concerns.

Before you close on a new home, you’ll want to know if there’s anything wrong with it. A standard professional home inspection will document the home’s condition in detail to let you know of any damage or safety issues. But what if the home inspection reveals significant problems? A leaky roof, crumbling foundation, or defective furnace can make a buyer change their mind about the deal. That’s where the home inspection contingency comes in. It allows you to cancel the sale or renegotiate with the seller price if serious problems with the home are found.

What is the home inspection contingency?

A home inspection contingency is a clause you as a buyer include in the purchase agreement you sign with the seller when they accept your offer. It allows you to cancel the sale if the home inspection is unsatisfactory and keep any earnest money you paid the seller.

Contingencies are common in real estate agreements. Buyers often include contingencies to protect themselves if:

• The home inspection reveals major issues with the home.
• The appraisal comes back lower than expected.
• They can’t get approved for a mortgage.
• They are unable to sell their existing home.
• Issues are discovered with the home’s title.

State and local laws determine how home inspection contingencies work, so ask your lender or real estate agent about the specifics in your area.

What does a home inspection cover?

A home inspection is a thorough examination of the condition of both the interior and exterior of the home. You can consult our complete home inspection checklist for a full list of what gets covered, but we’ll give you an overview here.

Exterior inspection

The exterior of the home is not just important for its appearance. It can tell a home inspector about any foundational concerns or leaks.

• Walls: An inspector will investigate any cracks, damaged or missing siding, major leaks, indication of pests, and suspected settling.
• Foundation: The foundation is one of the most critical parts of the home. The inspector will carefully examine the condition of the foundation to see if there are any cracks or sloping floors,
• Roof: Even a single loose shingle can cause a leak, so an inspector will look at the roof for damaged or missing shingles, vents, gutters, and outer pipes. They also will check the chimney, if there is one.
• Garage: If the home has a garage, the inspector will test the garage door and note any issues with noise. They’ll also examine ventilation to prevent carbon monoxide poisoning and identify areas where pests could enter.
• Grading: The inspector will also check the grading of the home. If the home has settled or has slopes moving toward it, regrading might be necessary.
• Septic tank: If the home has a septic tank, the inspector will check to ensure there are no leaks and that it is accessible.
• Additional buildings: If there are external buildings, such as sheds, the inspector may inspect them.

Interior inspection

The interior inspection will cover each room inside the home along with its systems and features.

• Electrical systems: The inspector will check what type of wiring the house has before testing outlets and light switches. They also will check the circuit breakers.
• HVAC system: The type, size, and age of the HVAC system will be evaluated, along with any records of service work. It may be challenging to inspect all ductwork without an HVAC expert, but an inspector can still get a general idea of potential leaks or nonfunctioning systems.
• Plumbing: The inspector will check the piping, water pressure, and any other potential plumbing concerns. You might want to ask the inspector how to turn off the water if you need to.
• Fire safety: All smoke and carbon monoxide detectors must be functioning correctly, and no fire rating can be compromised in the home or garage.
• Bathrooms: Good ventilation is critical to avoid mold and mildew. A home inspector also will check for leaks and ensure that toilets, sinks, and showers are properly secured and working.
• Laundry room ventilation: The dryer exhaust system will be inspected to ensure it’s clean and properly ventilated.
• Water heater: The inspector will assess the water heater’s age and condition, estimating its expected replacement date.
• Appliances: The inspector will test appliances that usually come with the home, such as a dishwasher, stove, and refrigerator.

How to manage the results of the home inspection

While it’s unlikely any house will be perfect, plenty of issues are minor enough to overlook. Maybe you want to update the garage because the door stalls, but that’s unlikely to stop you from buying a house. Other times, the results can be significant.

No significant issues found

If no significant damage or issues are found, that means both you and the house are in great shape. You may plan to replace the stove or redo that old vinyl siding, but there’s nothing about the house that compromises your safety or requires immediate repairs. You’re ready to close the sale and move into your new home. Keep in mind that just because everything checks out doesn’t mean issues won’t arise down the line. A home warranty is one way to protect yourself from unexpected repair costs.

Fixable issues found

Fixable issues are relatively minor concerns that you’d like to see addressed but won’t stop you from buying the home. Because they’re likely to be less expensive, negotiations for a lower price or some kind of cash credit are probably going to be easy.

Let’s say that the inspection found some evidence of carpenter ant damage on the screened-in porch. You should ask the seller to have a pest inspection done and address any potential active infestations. Because the inspection and possible extermination combined might cost less than $400 in your area, the seller is willing to cover the cost to close the sale.

Here are some other examples of fixable issues:

• Cosmetic wear and tear
• Older – but functional – appliances
• Overgrown landscaping
• Drafty windows
• Creaky floors

Significant issues found

Sometimes, the home inspection can reveal something that raises serious concerns for the buyer. These issues are typically related to the safety of the inhabitants or the integrity of the home’s structure, such as foundation problems or mold. These and similar issues can be costly and time-consuming to repair, forcing the buyer to spend a significant amount of money and delaying their move-in day for weeks or months.

For example, suppose the inspection reveals cracks in the foundation that suggest other structural issues. The estimated repair costs are $10,000 – $20,000 and it’s advised that you not move in until these problems are resolved. You can use the inspection contingency to ask the seller to make the necessary repairs or lower the price, or you can walk away from the purchase with your earnest money deposit.

How long after a home inspection can I cancel or negotiate terms?

The home inspection contingency usually sets a deadline for the buyer to decide to cancel the sale. While the time varies depending on the terms your purchase agreement, but it usually ranges 7 – 10 days. This is based on when the seller accepts an offer, not the date of the inspection. It’s important to schedule a home inspection as soon as possible after your offer is accepted so you have time to review the results before the contingency expires.

Do sellers have to agree to repairs?

Sellers do not have to agree to repairs. If they decide the repairs are too expensive or unreasonable and they think they can find another seller, they may allow you to cancel the sale.

Just as buyers have an amount of time to respond, sellers also have time to reply to any concerns the buyer might have. This typically ranges from 3 - 7 days, though it can vary.

The seller has several options for addressing buyer objections to the inspection. Some of these are:

• ●      Negotiate a lower selling price to account for the cost of expensive repairs and potential delays in moving in.
• ●      Accept the terms proposed by the buyer and make any necessary repairs.
• ●      Offer seller concessions, although these may be limited by the loan type.
• ●      Deny the terms and allow the sale to fall through.

When to waive a home inspection contingency

You don’t have to include a home inspection contingency in your purchase agreement, though it’s strongly advised to do so. If something goes wrong or you find a serious issue with the house, it could cost you money and legal trouble. You might find yourself stuck with a house that requires tens of thousands of dollars to make it livable. Because you waived your contingency, you’re obligated to complete the sale and may be stuck with a damaged home.

Sometimes, people skip the inspection contingency when they’re in a bidding war or a seller’s market. Waiving this contingency can make you a more appealing buyer to the seller. But if the seller is confident in the condition of the home, they shouldn’t be worried about this contingency. There are other ways to catch their attention, such as:

• Getting a preapproval for a mortgage
• Shortening the inspection timeline by a few days
• Offering a higher earnest money deposit
• Offering to cover some of the seller’s costs

If you do waive the inspection contingency, you should strongly consider an information-only inspection. This means you’ll at least know what you’re getting, even if you can’t use that information to back out or renegotiate. Because many types of loans require an inspection before purchase, you might have to get one of these if you waive the contingency.

The bottom line: A home inspection contingency has benefits

Navigating the home buying journey is an exciting milestone, but it’s crucial to protect your financial investment with a home inspection contingency. This important clause ensures your future home is safe and structurally sound before you finalize the deal. If unexpected problems do pop up, you have the flexibility to negotiate repairs, ask for a seller concession, or simply walk away without losing your earnest money. You don't have to let hidden property issues derail your financial goals or your peace of mind.

If you're ready to confidently step into homeownership, start your mortgage application with Rocket Mortgage today.

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