What Is a Home Inspection Contingency?

Buying a home is a big deal that involves a lot of money changing hands. To protect yourself in case something goes wrong, it’s a good idea to include contingencies that allow you to cancel the deal.

One of the most common contingencies is the home inspection contingency, which requires the home’s condition to be inspected by a licensed professional. After the home inspection, the contingency allows the buyer to cancel the sale if the result is unsatisfactory. This protects the buyer from buying a home that is found during the closing process to have major flaws or to be unsafe to live in.

Why Is a Home Inspection Contingency Important?

A home inspection contingency protects the buyer if there are serious problems with the condition of the home. Instead of having to buy a home they didn’t know was flawed, the buyer can terminate the deal and have their earnest money refunded.

The buyer can ask the seller to perform the repairs before closing day or at least cover what they will cost. Another option is to ask the seller to reduce the purchase price. The contingency gives the buyer some leverage to negotiate with the seller, because the seller knows the buyer could just walk away. If the seller refuses to compensate the buyer for major flaws, the buyer can back out without losing any money.

“It provides you with the flexibility you deserve to ensure you are making a smart buying decision by having the opportunity to gain a better understanding of the condition of the home without the risk of a large investment,” says Andrei Jablokow, owner of a WIN Home Inspection franchise in Lansdale, Pennsylvania.

How Does a Home Inspection Contingency Work?

After you’ve taken the time to arrange the home inspection, you’ll receive the inspector’s report. If the report reveals significant problems with the home, the homeowner typically has seven to 10 days to object to the inspection report. After that, the buyer may decide to try to negotiate with the seller or cancel the contract. Be sure to work with your real estate agent on this part, because continency laws vary depending on where you live.

When can you invoke the inspection contingency?

If the home inspection uncovers problems, you can ask the seller to make repairs, give you a cash credit for repair costs, or lower the purchase price. So, if the roof is leaking or there’s evidence of mold, you can show the seller the inspection report and ask them to work out a deal.

How long do you have to invoke the inspection contingency?

If you plan on using your home inspection contingency, it’s best to work with your real estate agent and communicate with the seller as soon as possible. This gives you more time to try to resolve the issue before closing.

“The home inspection contingency typically allows five to 10 days to conduct the home inspection and request any repairs in writing,” Jablokow says.

However, even if the seller agrees to fix the problem, you may not have the luxury of waiting for as long as it will take to complete repairs. In that case, you might invoke the home inspection contingency to back out of the sale.

If the seller agrees to repairs that might take a while, and you have the time, you may mutually decide to push the closing date.

Should You Waive the Home Inspection Contingency?

If you’re facing stiff competition in a seller’s market where the seller has the upper hand, you may be tempted to waive the home inspection contingency. That may help your bid stand out enough to be accepted, but it comes with some potentially huge risks.

Benefits of waiving the inspection contingency

If you’re in a bidding war and the seller has multiple offers to choose from, waiving the inspection contingency can make your offer more appealing. That’s because waiving this contingency means your offer can avoid any renegotiation over the home’s condition, and the deal can close more smoothly for the seller.

Risks of waiving the inspection contingency

If you waive the home inspection contingency and the inspection reveals damage or problems that need repairs, you’ll be unable to cancel the deal, and paying for any repairs will become your responsibility when the sale closes.

If you try to back out of the deal anyway, expect to forfeit your earnest money deposit, which can be anywhere from 1% to 3% of the purchase price. That means if you’re trying to buy a $400,000 home and you cancel the deal without a home inspection contingency, you’ll stand to lose as much as $12,000. You also may be held liable for breach of contract.

“Waiving the inspection completely means that there may be major issues with the home that you are not aware of when you buy,” Jablokow says. “In any case, it is always recommended that the home buyer get a professional home inspection to gain a better understanding of the home they are looking to purchase. Not having this valuable information beforehand can lead to health and safety hazards and costly repairs down the road.”

Alternatives to waiving the inspection contingency

Waiving the home inspection contingency isn’t the only way to sweeten your offer. If you have strong credit, and are confident that you’ll be able to get financing, you can waive the mortgage contingency instead. Another option is to simply outbid your competition.

FAQ

Here are answers to some common questions about home inspection contingencies.

What is the biggest reason to make your offer contingent on a home inspection?

In the same way that you can’t know how well a car is running until you look under the hood, you can’t know the true condition of a home until it’s been inspected. Looks can be deceiving, and serious — and expensive — problems could be lurking beneath the surface. A home inspection contingency protects your investment as the buyer.

Should a seller accept a contingent offer?

A home inspection contingency is a common condition to include in a purchase and sale agreement. While waiving it can make your offer more attractive to a seller, they shouldn’t be surprised to learn that you want to make sure the property is in good condition before you purchase it.

Can you make an offer on a house that is contingent?

If a seller has accepted an offer from another buyer and the sale is listed as contingent, also known as under contract, you still can make an offer. You won’t be first in line, but if the original deal falls through, you might be able to snag the property — and maybe even get a good deal since the first buyer backed out.