Understanding Home Inspection Contingencies: A Guide for New Homeowners

If you’re currently on the hunt for your first home, you may be feeling a sense of frustration by all of the steps to buying a house. Once you’ve experienced the search process, asked the right questions about the property, and are ready to make an offer, it’s time to discuss contingencies with your real estate agent. If you’re new to the home buying process, follow this guide to learn about including a home inspection contingency and other important clauses in your home offer letter to protect you as a home buyer.

What Exactly Are Contingencies?

Contingencies are conditions in a home purchase contract that must be met by both the buyer and seller before the final closing can happen. Buying a home is one of the most significant purchases someone can make in their life, and it’s important to have some level of protection should the investment fall short. It’s best practice to consider including common contingencies related to the appraisal, financing, home sale, and home inspection. These clauses are put in place to protect you as a home buyer, so make sure to carefully consider your needs during this process. If the contract’s conditions are not met in the agreed-upon time frame, the document will be null and void.

Importance of Home Inspection Contingencies

A home inspection contingency means that the buyer’s offer only stands dependent on the results of a home inspection. Within the formal offer, the contingency should include timeline details when it comes to getting the inspection completed. You can raise objections to the seller, and re-negotiate based on the results. Buyers can request that the sellers make repairs and a contingency will give the seller time to do so or lower the price to compensate accordingly. With a home inspection contingency in place, buyers also have the ability to cancel the contract while protecting their earnest money deposit.

If you choose to put in an offer that waives the home inspection contingency and problems do arise during a home inspection, you’ll be put in a tricky situation. You may lose your earnest money deposit, which could be a very sizable amount of money with market competition and increases in home prices. Your other options are to ask the seller to repair damages themselves, which is unlikely to happen, or follow through and deal with the home’s problems yourself.

With growing competition in the housing market, it can be tempting to skip the home inspection to appear more favorable to sellers with your offer. This is a serious step to disregard and can be extremely risky as a buyer. It may mean you’re taking on the financial responsibility of a home with major structural problems, asbestos, termites, or hidden flood damage. Though it may seem like you have a reasonable feel of the property’s current state, uncovering more information through a home inspection in California could be a dealbreaker in the transaction, saving you from a bad investment.

Utilizing Your Due Diligence Period

Once the seller accepts the terms in your offer letter and all of the included contingencies within a designated time frame, you will enter your due diligence period. During this period (typically 10-30 days), you’ll be able to set up an appraisal for the home, secure insurance, and review the title history. This is also the time that you’ll be able to set up the inspection, where professionals will go over the condition of the home’s major systems, structures, and appliances. If you’re wondering what home inspections cover, they will take a close look at the exterior and interior of the home—the roof, attic, visible structures, as well as the heating, air conditioning, plumbing, and electrical systems.

These run-throughs usually last a few hours and it’s incredibly important that you, as the prospective buyer, are there to ask questions and form a solid opinion about the state of the home. After the inspection, you’ll receive a written report that includes the status of each problem, recommendations for repairs or replacements, and specific issues that need immediate attention or standard maintenance.

The Bottom Line

It may be tempting to put in an offer on a home without including a home inspection contingency, but there may be hidden problems that are not easily spotted during an initial house tour. In an everchanging market, you want to make sure that you’re making the smartest investments in properties that are going to serve you well for years to come. You probably have several design features in mind for your dream home, but don’t forget that a perfect home should be safe and secure. Ordering an inspection and including this as a contingency within your formal offer will give you piece of mind, and will be cost-effective in the long-run, setting you up for financial success as you navigate the home buying and ownership journey.