What it is:
Also known as a "due diligence contingency," the inspection contingency is a clause in an offer contract that lets buyers perform inspections during a certain amount of time.
As a buyer, it's a bargaining chip you can use to either insist on having the needed repairs done, or to back out of the deal without losing your earnest money deposit.
Our agents usually recommend 7-12 days for the inspection contingency period to keep your offer competitive and give you enough time to complete all necessary inspections. If a seller provides upfront inspection reports, they'll often receive several offers with inspection contingencies waived.
Offers with a long or complicated inspection contingency will not get first consideration.
What happens during the inspection contingency period:
- You'll hire a professional to inspect the property and review all disclosures.
- A home inspector will come out and perform a general inspection.
- If more detailed follow-ups are needed, you'll get specialists to come out and inspect (ex: plumbing, foundation, termites, etc.).
- If major issues come up, buyers can then choose to back out of the offer or negotiate for repairs or closing credits.
Don’t sweat the small stuff.
Even in a new construction, a home inspection may turn up many issues. You should be sensible in demanding repairs of the seller, or in asking for a price reduction or a closing-cost credit based on the findings of the inspection.
A common mistake by first-time homebuyers is presenting the seller with a long laundry list of minor issues. The real purpose of a home inspection is to uncover major defects that would cause a buyer not to want to continue with the transaction, not to compile a lengthy to-do list for the seller.
Do not expect sellers to care about any minor repairs, or any known conditions that were revealed in the Seller’s Property Disclosure Statement. You should not even mention things like missing electrical cover plates, dirty filters or damaged window screens. Problems like peeling paint, discolored walls, damaged floor coverings and neglected walkways and driveways were known beforehand, and were factored into the sale price.
Even if you’re a perfectionist, there are many issues covered in the home inspection report that you just have to let go of, and entrust to your DIY skills.
If major appliances are part of the deal, the home inspector will spend time examining them, but appliances noted to be near the end of their life cycles are the buyer’s problem, not the seller’s. Buying an old home usually means buying old appliances.
When considering an older home where you foresee a lot of repairs and replacements, and you’re not sure if you will have the money available for these necessary upgrades, it is often best to cross that property off your list. If you fail to complete your inspections on time and sign off on the condition of the home, you may lose your earnest money deposit if you try to back out of the contract.
What to do next:
After reviewing your home inspection report, you can choose one of the following courses of action:
• You can cancel the purchase agreement
• You can just continue with the purchase
• You can try to renegotiate the price or ask for credits
• You can ask the seller to do the needed repairs
If you want to back out of the purchase using the inspection contingency, you’ll be required to fill out a short form that says you’ve read the inspection report, and that you find the home’s condition unacceptable. You may be required to spell out specific problems with the property. If you do, and the seller addresses these issues, you may be forced to go through with the purchase, or forfeit your earnest money.
If you want to ignore the findings of the report, and proceed with the purchase contract as planned, go ahead. You used your inspection contingency as a safety net, in case any major structural defects were discovered. When only minor issues arise, your inspection report will serve as a guide for future repairs and maintenance, and as your owner’s manual.
If you want to negotiate, focus on high-priced repairs that could run into the thousands of dollars. You’ll have more luck asking the seller for a reduction in price than asking the seller to do the repairs for you. Sellers agree that doing the repairs for a picky buyer is too stressful; those brand new roof shingles are never going to match the old ones. If the house was offered “As-Is” the buyer can still get an inspection contingency and use it to cancel the purchase, but cannot request any repairs or credits. Of course, the seller will try and bargain down the size of the credit he gives you toward the improvements, so be prepared to show reports and professional estimates to justify your request. Your Open Listings agent will help facilitate your home inspection and contingency negotiations.
Keep Calm and Inspect On
Stay on top of your purchase contract and all its contingencies. Hire reliable inspectors and ask for their reports within 24 hours. You are looking for new discoveries, not problems and issues that were previously disclosed or are obvious, like cracks in the wall, or anything you knew about before making your offer. Try to view the big picture when negotiating repairs or credits with the seller. Don’t get hung up on minor issues or bogged down with minute details. Work with competent real estate agents like Open Listings and use qualified inspectors to guide you through this important step.