What is a Home Inspection Contingency?
Many home purchase contracts contain home inspection contingencies
A home inspection contingency is handled differently across the United States, depending mostly on local customs and state laws. In most states, home inspection contingencies are part of the purchase contract. This means a homebuyer can cancel the sale or try to negotiate repairs based on the results of a home inspection. In some situations, home inspections are conducted before entering into a contract to purchase.
If you don't believe that a home inspection contingency is a big deal, consider this: A seller in Minneapolis once agreed to a very attractive offer for his home -- many thousands of dollars below market value -- because I presented a purchase contract without a home inspection contingency. These types of contingencies are a major factor in many real estate transactions.
In many states, a buyer gets a week -- sometimes two weeks -- to conduct a home inspection. The period of time can be shortened or increased during offer negotiations.
Types of Home Inspections
A general home inspection involves many components, which are primarily structural and visual, meaning whatever the home inspector can actually see. However, most home inspectors are neither licensed nor qualified to discuss findings of concern that may 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 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, none of which a home inspector can tell by noticing the low water pressure. If the home inspector recommends further inspections in the report, the buyer may wish to call a specialist for advice. Specialist inspections include any of the following:
Home Inspection Contingency Expiration Date
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 not does not automatically expire unless you take a specific action such as signing a contingency release. However, if the contingency expires before you report the inspection findings to the seller, your earnest money deposit may be at risk if you try to cancel the contract based on a defect disclosed in the inspection.
When you submit a sales contract that has a home inspection contingency, it is vitally 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.
Our California Residential Purchase Agreement contracts, for example, give the buyer 17 days by default to conduct all visual inspections, which include a home inspection. It also continues if the buyer does not release the inspection contingencies by signing a special document. In my real estate practice, we note when the contingency release is due and we hound the buyer's agent to what often feels like the ends of the earth to get it.
Not every listing agent is this diligent. If the listing agent never demands the contingency release for inspections, buyers can often skate through the contract without performing that act and none of the parties might even notice that the inspections contingencies are still in place. By not releasing the inspection contingency, it means in California the buyer can cancel on the day it closes, if the buyer chooses.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.