INSPECTION CONTINGENCY: What Happens During a Contingency


One of the things you should do before purchasing a house is to have it inspected by a professional home inspector. Yes, we hear your concern: “Buying a home is already a costly endeavor!” “Why would I choose to pay hundreds more if I wasn’t compelled to?” In this article, we’ll delve into home inspection contingency, waived, and removing inspection contingency

What is Inspection Contingency

An inspection contingency says that a professional home inspection must be done within a certain time frame before a real estate contract can become binding. It makes sure that the buyer gets important information and gives them the chance to negotiate repairs, the sales price, or even to walk away with their earnest money.

How Does the Inspection Contingency Work?

A “due diligence contingency,” which is another name for an inspection contingency, gives the buyer a certain amount of time to have the house inspected. Depending on what the home inspection shows, the potential buyer might try to negotiate repairs or back out of the deal.

A good inspection contingency should say what happens when the buyer wants to bring up problems and how long the buyer has to finish an inspection and make objections. Most contingency clauses give sellers a certain number of days from the time the request is made to agree to make repairs or lower the sales price in exchange for money.

Home Inspection Contingency

With a home inspection contingency, a buyer can find out about any major problems with a home before closing. You can use a home inspection as a condition in your contract with the seller, which is the first sign that it is important. This clause says that if a home inspection finds major problems, you can back out of the deal without penalty within a certain amount of time.

If they can let you walk away from such a large deal, the possible faults with the home must be quite substantial. In some cases, realtors have been known to insert home inspection stipulations into contracts, such as those for newly constructed homes. Inspections in a new home often cover the following areas:

  • Foundations: Checking before the concrete is poured (there is very little that can be corrected once the concrete is done).
  • Pre-drywall: Examining the structure and mechanics before laying drywall.
  • Full inspection: The completed home is inspected thoroughly.

Why Do Buyers Need a Home Inspection Contingency?

The ability to make a contingent offer on a home gives a buyer valuable security and negotiating strength. It lets you back out of a home sale if certain things in the purchase agreement are deal breakers.

A home inspection involves hiring a real estate professional to assess a home and provide buyers with a report on its condition. A typical home inspection will look through the structure, appliances, and major systems of the home to ensure that everything is in working order. Check your foundation, roof, and attic, as well as major appliances, electrical, plumbing, and HVAC systems. You can get a complete list of what a home inspection should cover by visiting our home inspection checklist.

You can also pay extra for specialized inspections such as pest, chimney, and water and sewer inspections. If you want them done, you should schedule them around the same time as your home inspection.

How Long Does the Home Inspection Contingency Last? 

A home inspection clause can last anywhere from a few days to a few weeks, depending on the terms of your purchase agreement. If your agent uses a state-form contract, it may say how long the conditional clause will last and how to end it.

In California, for example, the Residential Purchase Agreement gives the buyer 17 days to do inspections and talk about repairs. This one stays in place until the buyer signs a release. Most contingencies end when the deadline passes.

Make sure you understand the details of the home inspection contingency and what happens if you miss the deadline before signing a purchase agreement. If you don’t finish the inspection on time, you may lose the contingency and have to buy the house as-is.

Waived Inspection Contingency

As buyers compete for a limited number of homes, many are making a concession that would be unthinkable in a normal housing market: they are promising sellers that they won’t use a home inspector’s findings to negotiate repair costs or back out of a contract.

Buyers in many regions waived the home inspection contingency. It’s yet another proof that, in an era of record-low inventories, sellers are in complete control. “That’s just part of the reality right now,” ICE Mortgage Technology president Joe Tyrrell says.

What Are the Risks with Waived Home Inspection Contingency?

A home inspection is a required step in the home-buying process. After a buyer’s offer is accepted, the buyer hires a licensed professional to check the wiring, flush the toilets, look in the attic, and test the heating and cooling systems.

In a buyer’s market or a more balanced market, buyers often use the inspection as a way to get a better deal. For example, a toilet that runs doesn’t change how safe and sound the house is in general, but it does give the buyer a chance to ask the seller to fix it or give them money back.

You would never forgo a home inspection under normal conditions. Purchasing a home is often the most expensive purchase that a person will ever make. A home inspection performed before closing safeguards your financial interests. If you skip it, you risk major problems that might cost you a lot of money in the long run, such as asbestos, mold infestation, or foundation or support beam fissures.

Should Inspection Contingency be Waived? 

Some buyers give up the option of a home inspection to make their offers more appealing in markets where there are a lot of buyers. Sellers normally prefer unconditional bids since they have fewer hurdles that could cause the deal to fall through. On the other hand, buyers who give up their right to a home inspection put themselves in grave danger.

Some homes have serious problems that the average buyer might not notice, like cracks in the foundation, mold, bug infestations, and broken HVAC. Even though the seller has to tell you about any known problems with the house, it’s possible that they don’t know about all of them. Most of the time, it’s not a good idea to waive the home inspection condition unless you’re buying a brand-new home with warranties.

When And How to waived An Inspection Contingency

Getting a home inspection contingency waived can be advantageous in some situations. Sellers, too, want clarity. If they are more confident that your offer will be accepted since there are fewer contingencies attached, it may help you win a bidding battle. Waiving an inspection, on the other hand, is dangerous.

It’s critical to understand that if you do this, you’ll be responsible for any necessary repairs. If you waive this contingency, you must consider if the house is worth the additional expense in repairs.

If you like the house in a seller’s market but don’t want to give up your inspection contingency, you can sweeten your offers by paying a certain amount above the appraised value or offering to pay for all or a portion of the closing costs normally paid by sellers, such as real estate agent commission.

Alternatives to Waiving the Home Inspection Contingency

Instead of giving up your right to an inspection to make your offer more appealing, think about other methods to sweeten the bargain. You might offer to pay for a percentage of the seller’s closing costs or extend the homeowner’s time to move out after the sale. You might also offer a larger earnest money deposit to demonstrate your commitment to the house. Some buyers even write a letter to the seller about why they love the house. This helps them connect on an emotional level.

Removing Inspection Contingency

When everything has been agreed upon, that means the inspection contingency is removed. For example, the home inspection contingency is removed if the seller agrees to everything on the list. If the seller doesn’t, the buyer can either stick with the contract, make a counteroffer with a different list, or cancel the contract without being charged.

The party who creates the contingency (usually the buyer) is the one who can default on the contract if the contingency is not met. Typically, if both parties want the deal to go forward, they can reach an agreement. Real estate brokers are often able to find a middle ground when two parties can’t agree on anything.

What are Some Challenges of Inspection Contingencies? 

Home inspection contingencies are intended to safeguard home buyers, but that does not mean they are without drawbacks. The timetable is one of the most typical issues that home purchasers face when dealing with inspection contingencies.

It can be difficult to organize a home inspection by the deadline agreed upon with the seller. When scheduling issues develop, purchasers must decide whether to proceed or not before the inspection is done – or attempt to extend the deadline with their seller.

How do you negotiate a home inspection contingency?

Tips for a Successful Negotiation Following a Home Inspection:

  • Talk with your real estate agent about the report.
  • Sort repairs according to their cost and severity.
  • Don’t get too worked up about minor details.
  • Ask for concessions on big products.
  • Obtain bids from contractors.
  • Take the market into account.
  • Understand what “as-is” means.

What happens during a contingency?

With a mortgage contingency clause, either party can back out of the agreement to sell the house without having to pay a penalty during the term of the clause. The seller will be free to look for other offers, and the buyer’s earnest money deposit will be returned.

How do you release a contingency inspection?

Typically, the seller must provide the buyer with a “notice to perform.” It provides them with 48 to 72 hours to act on or release a contingency. A buyer must proceed with the acquisition after releasing contingencies. If not, the seller has the right to demand the buyer’s deposit as well as other damages.

What is a due diligence contingency?

An inspection contingency, also called a “due diligence contingency,” gives the buyer a certain amount of time, such as five to seven days, to have the home inspected. It protects the buyer by letting him or her back out of the deal or negotiating repairs based on what a good home inspector finds.

What should I ask the seller to fix after an inspection?

In principle, it is fair to request repairs for any faults in the home that pose a threat to one’s health or safety. Think about the home’s structure and foundation, as well as its plumbing and electrical systems.

Can I negotiate an offer after an inspection?

Theoretically, you can negotiate for anything after a home inspection. The hard part is getting the seller to agree to your terms. You will need lots of evidence, such as photos and repair quotes, because it is common for a seller to be unaware of the problem in question.

Frequently Asked Questions

What are examples of contingencies?

A contingency is the possibility of a negative event occurring in the future, such as an economic downturn, natural disaster, fraudulent conduct, terrorist attack, or epidemic.

What are the most common problems found in home inspections?

  • Wiring fault.
  • Roof issues.
  • Defects in the heating/cooling system
  • Plumbing problems
  • Inadequate attic insulation and ventilation.
  • Whole house is poorly maintained.
  • Inadequate drainage surrounding the structure.
  • Exterior air and water infiltration through cracks and window perimeters.

Why would a buyer choose to use a contingency?

Buying a home can be hazardous. There could be structural problems with a property, or ownership could be disputed. As a result, buyers must include contingencies in their bids so that if they discover a flaw in a property, the contingency will nullify the sale deal.

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