What Is a Home Inspection Contingency?
Definition & Examples of a Home Inspection Contingency
A home inspection contingency is a clause in an offer to buy a home that gives the buyer a way to back out if provisions aren't met. It makes the offer contingent, or dependent, on the results of the home inspection.
Learn more about how home inspection contingencies work and what they mean for buyer and seller.
What Is a Home Inspection Contingency?
A home inspection contingency is a clause added to a real estate contract during an offer to buy a home. When an offer to buy is contingent on the results of the home inspection, it means a homebuyer can cancel the sale or try to negotiate repairs based on the results of the inspection.
Home inspection contingencies are handled differently across the United States, depending on local customs and state laws. In most states, home inspection contingencies are part of the purchase contract. In some situations, home inspections are conducted before entering into a contract to purchase.
Alternate name: Inspection rider
How Does a Home Inspection Contingency Work?
When a home inspection contingency is added to a purchase offer, the contract isn't binding unless the provisions of the contingency are met. Home inspection contingencies are a major factor in many real estate transactions because they provide a way for the buyer to cancel the sale. These contingencies protect the buyer, but the seller may find them frustrating to deal with.
In many states, a buyer gets a week or two to secure a home inspection. The time can be shortened or increased during offer negotiations.
The home inspector will visually inspect the home and may make recommendations if their findings indicate areas of concern that merit an expert's opinion.
Most home inspectors are neither licensed nor qualified to discuss findings of concern that extend beyond their areas of expertise.
For example, if the home's water pressure is low, the home inspector will note the low pressure on the home inspection report and recommend that the buyer hire a licensed plumber for further investigation. There could be tree roots growing into the plumbing system, or the plumbing pipes could be corroded, but a home inspector can't tell any of that from a visual inspection.
If the home inspector recommends further inspections in the report, the buyer may wish to call a specialist for advice. For example, any of the following could require an expert opinion:
- Pests and termites
- Heating and air conditioning
- Lead-based paint
- Easements and encroachments
- Foundation and basement
- Sewer or septic system
- Soil stability
- Trees and vegetation
- Water systems and plumbing
- Radon or methane gas
- Permits and zoning
When you submit a sales contract that has a home inspection contingency, it is important to conduct the inspection as soon as possible. If the home inspector recommends that you call an HVAC specialist to do further investigation of the furnace, for example, you might have to contact several specialists before finding someone available in the time frame you need. Your real estate agent can help you coordinate inspections and send the findings to the seller in a timely manner.
Releasing the Contingency
To determine the date that a home inspection contingency should be released, read your purchase contract. Depending on the details of the contingency you negotiated with the seller, it could be that it does not automatically expire unless you take a specific action, such as signing a contingency release.
If the contingency expires before you report the inspection findings to the seller, then your earnest money deposit may be at risk when you try to cancel the contract based on a defect disclosed in the inspection.
As an example, California Residential Purchase Agreement contracts give a buyer 17 days by default to conduct all visual inspections, which includes a home inspection. It also continues if the buyer does not release the inspection contingencies by signing a special document.
Not every listing agent is diligent enough to follow up on contingency releases. If the listing agent doesn't demand the contingency release for inspections, none of the parties might notice that the inspections contingencies are still in place, and the buyer could cancel, even up to the day the sale is supposed to close. Therefore, both buyer and seller should take careful note of all deadlines and expiration dates to ensure the contract is followed and a suitable sale goes through.
- A home inspection contingency is a clause or rider in a purchase contract that makes the success of the sale contingent, or dependent, on the results of the home inspection.
- A home inspection contingency protects the buyer in the event that the home inspection reveals information that makes them not want to go forward with the sale.
- Although sellers may find home inspection contingencies inconvenient, they provide an incentive for the buyer to move forward with an offer.
- Buyers must take care to complete inspections within deadlines set forth in the contract or risk forfeiting their earnest money.