A guide to the home inspection contingency

Before you close on a new home, you want to know it’s in good shape. A standard professional home inspection will document the home’s condition in detail to reassure you you’re getting what you expect. But what if the home inspection reveals significant problems? A leaky roof, crumbling foundation, or defective furnace can sour you on a deal quickly. That’s where the home inspection contingency comes in. It allows you to cancel the sale or renegotiate the price if serious problems with the home are found.

Key takeaways:

• A home inspection contingency protects a buyer from purchasing a house that may pose significant safety or financial issues.
• All parties involved in a home sale will agree to a specific timeline, typically giving the buyer 7–10 days and the seller a shorter time frame to make final decisions after the inspection.
• Home inspections aren’t always required, but it’s wise for the buyer to get one. This way, they can renegotiate the price or walk away from the sale if they have concerns.

What is the home inspection contingency?

A home inspection contingency is a clause 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. Purchase contracts often include contingencies that cancel the sale if the buyer is unable to obtain financing, the seller is unable to find a suitable replacement home, the home appraises for less than expected, or 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 focuses primarily on parts of the house that can be a make-or-break deal for a buyer. While a complete home inspection checklist will contain more details, we’ll review the basics 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: You can learn a lot about a house by the 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 examine this more closely and provide suggestions on what needs further investigation.
• 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: This can be difficult to determine, but the inspector will 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, it will likely be inspected 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 also covers a lot of ground.

• Electrical systems: What type of wiring the house has will be checked before the inspector tests outlets and light switches. They also will check the circuit breakers.
• HVAC system: The type, size, and age of the air conditioner and furnace 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 blockages.
• Plumbing: Types of piping, water pressure, and potential plumbing concerns will all be investigated. 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

It’s unlikely for any house to be perfect, but 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 nothing significant is found, you’re in great shape. Maybe you want to replace the stove or redo that old vinyl siding. Still, 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. However, it’s worth noting 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 a regular 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.

Significant issues found

Sometimes, the home inspection can raise severe concerns in the buyer’s mind. 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, which can leave the buyer not only spending a significant amount of extra money but also waiting to move in for weeks or even months.

For example, say 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, lower the price, or walk away from the purchase.

How many days after a home inspection does the buyer have to 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, it’s usually 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, or if 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 – 10 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. You can run into legal and financial complications if you don’t. 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. Still, 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 believe the best way to get the home is to waive the inspection contingency, you might still want to 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 

The home inspection contingency protects the buyer from being stuck with a home that has unexpected defects and may require expensive repairs. Including this contingency in your purchase agreement allows you to legally walk away from the sale and retain your earnest money deposit. While there are situations when you might want to waive it to secure the home in a bidding war, you should weigh your options carefully.

Think you’re ready to start the road to homeownership? Start an application for preapproval with Rocket Mortgage^® today.