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 depends on the results of the home inspection, it means a buyer can cancel the sale or try to negotiate repairs based on what the inspection turns up.
Home inspection contingencies are handled in many ways 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 cases, home inspections are done before signing 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 terms of the contingency are met. Home inspection contingencies are a major factor in many real estate contracts because they provide a way for the buyer to cancel the sale. They protect the buyer, but the seller may find them a pain to deal with.
In many states, the 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 show areas of concern that merit an expert's insight.
Most home inspectors are neither licensed nor qualified to discuss findings of concern that extend beyond their areas of expertise.
For instance, if the home's water pressure is low, the home inspector will note the low pressure on the home inspection report and suggest that the buyer hire a licensed plumber to take a look. The cause could be tree roots growing into the plumbing system, or the pipes could be corroded. But a home inspector can't tell any of that from a visual inspection.
If the home inspector suggests 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 you can. Say the home inspector says you should call an HVAC specialist to do further testing of the furnace, for instance. You might have to contact many firms before finding someone who can come out within your time frame.
Your real estate agent can help you arrange the 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 that you worked out with the seller, it could be that it does not automatically expire unless you take a certain 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. If you try to cancel the contract based on a defect disclosed in the inspection, be sure to do it before the deadline.
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 careful 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 contingencies are still in place. Then the buyer could still cancel, even up to the day the sale is supposed to close. 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 something that makes them not want to go forward with the sale.
- Although sellers may find home inspection contingencies to be a pain, 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.