Home Inspection Contingency – A Complete Guide

By: ROS Team

When buying a home, there’s a lot on the line—and that’s where the home inspection contingency comes in. With 86% of home inspections uncovering issues that need fixing, it’s crucial for buyers to protect themselves from unexpected repairs and costly surprises. In this guide, we’ll break down everything you need to know about home inspection contingencies and how they can safeguard your investment.

What Is The Home Inspection Contingency?

A home inspection contingency, also called a “due diligence contingency,” is a clause in a real estate contract that makes the purchase dependent on the results of a home inspection. It gives the buyer a specific period, usually 7 to 10 days, to review the inspection report and raise concerns.

Why Are Home Inspection Contingencies Important For Buyers?

Home inspection contingencies are important for buyers because they provide protection and leverage in the buying process. They allow buyers to assess the condition of a property before committing fully to the purchase.

If significant problems are identified in the inspection, buyers have the option to ask for repairs, renegotiate the purchase price, or back out of the agreement without forfeiting their deposit. This contingency ensures that buyers are making an informed decision and reduces the risk of unexpected costly repairs after closing.

How Does The Inspection Contingency Work?

The inspection contingency allows buyers to inspect the property and decide how to proceed based on the findings. While not mandatory, they offer crucial protection for buyers, though sellers can reject offers that include them.

A well-drafted inspection contingency specifies the timeframe—usually 7 to 10 days—for completing the inspection and how the buyer should respond if issues arise. If the buyer wishes to raise concerns, the contingency should clearly define the process for requesting repairs or renegotiating the terms.

Despite sellers’ ability to refuse such contingencies, they are highly beneficial and should not be waived lightly.

What Does The Home Inspection Cover?

A home inspection covers a thorough evaluation of the property’s condition, focusing on both the exterior and interior.

Exterior Inspection

Walls: The inspector looks for cracks, signs of water damage, or any structural weaknesses that could indicate problems with the home’s foundation or overall stability.

Foundation: The foundation is checked for cracks, uneven settling, or moisture issues that could lead to serious structural damage.

Roof: The inspector examines the roof for damaged or missing shingles, leaks, or signs of wear that could lead to future repairs.

Garage: The garage is inspected for structural soundness, proper ventilation, and functional garage doors. Electrical wiring and fire safety measures are also checked.

Grading: Grading refers to the slope of the land around the home, which should direct water away from the foundation to prevent flooding or moisture damage.

Interior Inspection

Plumbing: The inspector checks for leaks, water pressure, and the condition of pipes, faucets, and drainage systems to ensure the plumbing system is functioning properly.

Electrical: The electrical inspection involves checking outlets, switches, circuit breakers, and wiring to ensure everything is up to code and there are no safety hazards.

HVAC: Heating, ventilation, and air conditioning systems are inspected for efficiency, proper installation, and any signs of wear or malfunction.

Fire Safety: Inspectors check the smoke detectors, carbon monoxide detectors, and fire alarms to ensure they are properly installed and functional.

Water Heater: The water heater is assessed for age, leaks, and efficiency, ensuring it is heating water properly and safely.

Laundry Room: Inspectors check the washer and dryer connections, venting, and the condition of appliances for any issues.

Kitchen Appliances: The functionality and condition of major appliances like the refrigerator, stove, dishwasher, and microwave are checked to ensure they are in working order.

Bathrooms: In the bathrooms, inspectors look at sinks, toilets, showers, and tubs for leaks, drainage, and water pressure, as well as the condition of tile, grout, and ventilation.

What Is Not Covered by the Home Inspection?

Although the specifics of what home inspectors examine can vary, certain areas are generally not included in a standard home inspection, such as:

Pest Control (Termites, Carpenter Ants, and Rodents):

A standard home inspection doesn’t include checking for pest infestations, such as termites, carpenter ants, or rodents. Specialized pest inspections are required to identify these types of problems, as they can cause structural damage.

Sewer Line:

Inspectors typically don’t examine the sewer line for blockages or leaks. To assess the condition of the sewer system, a separate inspection using a specialized camera may be needed.

Paint, Wallpaper, and Other Finishes:

Cosmetic issues like peeling paint, outdated wallpaper, or other aesthetic finishes aren’t covered in a home inspection. The focus is on the structural and mechanical systems of the home, not its appearance.

Inside of the Fireplace and Chimney:

While the exterior of the fireplace may be checked, the inspector doesn’t usually examine the interior of the chimney for cracks, blockages, or other potential hazards. A chimney specialist would need to be hired for a thorough inspection.

Home Decor and Finishes:

Elements like curtains, blinds, and other decorative items are not part of the inspection. These are considered personal belongings or cosmetic details that don’t affect the home’s functionality or safety.

Building Code Violations:

Home inspectors are not responsible for identifying violations of building codes or local regulations. They are there to evaluate the condition of the home, not to determine whether it complies with legal requirements. This would require a separate building inspection.

Internal Electrical Components:

While home inspectors check outlets, switches, and visible electrical components, they do not open walls or investigate internal wiring. If electrical issues are suspected, a licensed electrician may be required for further investigation.

What Are The Results Of The Home Inspection And How To Manage Them?

After a home inspection, the results usually fall into two categories:

Fixable issues
Significant issues

Fixable Issues

These are minor problems that can be repaired with little effort or cost, and they often do not impact the overall value or safety of the home. Buyers can negotiate with the seller to fix these issues, reduce the purchase price, or provide a credit at closing to cover the repairs.

During the inspection, let’s say the inspector finds a malfunctioning GFCI outlet in the bathroom and a cracked window seal in the master bedroom. The estimated cost for fixing the outlet is $100, and replacing the window seal would cost around $200.

You can ask the seller to repair both before closing or request a $300 credit at closing to handle the repairs yourself. Since these are minor, inexpensive issues, negotiations typically go smoothly, and neither party faces significant delays or costs.

Significant Issues

These are larger, more serious problems that can affect the structural integrity, safety, or livability of the home. Significant issues can lead to extensive repairs, delays, or even a breakdown in the sale if both parties cannot reach an agreement.

Let’s say your home inspection reveals a major issue, like mold growth in the basement due to a long-term water leak. The estimated cost to remediate the mold and repair the damage is $10,000, and it would take six weeks to complete.

You can ask the seller to either fix the problem, reduce the sale price by $10,000, or offer a credit at closing to cover the cost of repairs.

However, if the seller refuses to cooperate or if the repairs would take too long, you may decide to use the inspection contingency to back out of the deal. This allows you to walk away from the purchase without losing your earnest money, especially if the problem is too costly or inconvenient to resolve.

How And When To Waive An Inspection Contingency?

Waiving an inspection contingency can be a strategic decision for buyers, especially in competitive housing markets where sellers are looking for the smoothest transactions. However, it’s important to know how and when to waive it wisely, as skipping an inspection entirely could lead to costly surprises down the road.

How to Waive an Inspection Contingency?

Rather than skipping the home inspection altogether, buyers can adjust the inspection contingency to make their offer more appealing to the seller. For example:

Set a Threshold for Repairs:

You can conduct the inspection but promise the seller that you’ll overlook any repair costs below a certain amount, say $500. This shows the seller you won’t ask for minor fixes, while still allowing you to identify major issues.

Limit the Scope of the Inspection:

Specify that you’re only concerned with significant problems like mold, radon, or foundational issues, and that smaller cosmetic problems won’t derail the sale. This reassures the seller that you’re serious without entirely waiving your right to due diligence.

Even if you waive the inspection contingency, it’s crucial to reserve the right to perform the inspection for informational purposes. This way, if a serious defect like toxic mold or structural damage is found, you may still have legal grounds to negotiate or back out.

When to Waive an Inspection Contingency?

Waiving the inspection contingency might make sense in the following situations:

Highly Competitive Markets:

If you’re facing stiff competition and need to make your offer stand out, waiving the inspection contingency could help give your bid an edge.

Seller’s Market:

When sellers are receiving multiple offers, waiving the contingency can signal that you’re serious about the purchase and willing to move forward quickly without minor negotiations.

However, under normal circumstances, it’s not advisable to waive the inspection completely because buying a home is a major investment. Inspections protect your financial interests by uncovering potential problems with the home.

Frequently Asked Questions

What Is a 10 Day Contingency in Real Estate?

A 10-day contingency in real estate is a clause that gives buyers 10 days to inspect the property after their offer is accepted. During this time, buyers can assess the home’s condition and address any issues with the seller, helping to minimize financial risks before finalizing the purchase.

What Happens if Inspection Contingency Expires?

If the inspection contingency expires without the buyer taking action, the buyer typically loses the right to request repairs, negotiate the price, or back out of the deal without penalty. This means the buyer is agreeing to move forward with the purchase as-is, regardless of any issues found during the inspection.

How Long Is the Real Estate Contingency Period?

The real estate contingency period typically lasts 30 to 60 days, though it can vary depending on the terms agreed upon in the contract.

How Many Days After Home Inspection Does the Buyer Have?

After the home inspection, the buyer usually has 3 to 5 days to review the inspection report and decide whether to request repairs, negotiate the price, or back out of the deal.

What Inspections Are Needed When Buying a House?

When buying a house, several important inspections help ensure the property is in good condition. A home inspection covers the structure, plumbing, electrical systems, and more. A pest inspection checks for termites and wood-damaging insects, while a radon inspection tests for harmful gas levels. Other key inspections include mold testing and sewer line inspections to prevent costly issues.

What Happens if Home Inspection Fails?

If a home inspection fails, it means the inspector found significant issues that could pose safety risks or require costly repairs. You can decide to negotiate with the seller to address the issues, terminate the contract and find another property, or proceed with the purchase and factor in the necessary repairs.

How Often Do Buyers Back out After Inspection?

Buyers back out after a home inspection around 15% of the time, according to industry data. This typically happens when significant issues are uncovered, and the buyer and seller can’t agree on repairs or a price adjustment.