How a home inspection contingency works
A home inspection contingency clause is a real estate contract provision allowing the buyer to inspect the property before finalizing the sale. It protects the buyer's interests, ensuring they get a chance to become aware of the property's condition and any potential issues it might have. The buyer hires a licensed home inspector and pays for the inspection out of pocket. Potential buyers can waive them, but it’s important to know the results of a home inspection report can make or break a real estate transaction. Some buyers question the need for a home inspection contingency, but you're about to discover why they are vital and why skipping a home inspection is rarely smart.
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How do home inspection contingencies work?
A home inspection contingency is part of making a larger offer on a house. Once you've paid your earnest money deposit and signed the contract, the inspection contingency, also called a buyer investigation of property contingency, gives the buyer time to get a licensed home inspector to inspect the structure and systems of the home and generate a report of their findings.
A home inspection contingency period can last a few days to a few weeks, depending on the terms of your contract. The length of time a home inspection contingency lasts also varies by state. Some will automatically expire after the deadline passes. Other contingencies must be resolved with a signed inspection contingency addendum or release.
Is a home inspection required?
A home inspection is generally not required by law or by mortgage lenders. However, a home purchase is one of the most important purchases you’ll make, and a home inspection gives you negotiation leverage and important knowledge for your impending investment, including short- and long-term home improvements that may be needed. Most lenders typically don’t require a home inspection when approving a mortgage, but different types of loans have different requirements. They usually want to see an appraisal showing the property's market value. Learn about how a home appraisal differs from a home inspection.
Do home inspections requirements vary by state?
While home inspections are not typically required by law, most states have regulations governing home inspectors. For example, in Ohio, the state requires home inspectors to be licensed, have a signed contract with the client, and produce a written report that complies with Ohio laws and regulations. The American Society of Home Inspectors (ASHI) has a helpful map of state regulations for U.S. home inspections, which may help you in choosing a home inspector.
Reasons to get a home inspection
Getting a licensed home inspector gives you peace of mind because you'll get a report of the condition of the parts of the house you can't see. Consider the following reasons to get a home inspection:
You can back out.
It gives you the opportunity to back out of the contract during the contingency period if the inspection reveals unexpected and concerning results.
You can use the results to negotiate.
If the home inspection report finds significant problems with the home, you can renegotiate either a reduction in the price or a credit from the seller to cover the repairs.
Learn any existing safety concerns.
You can walk away or negotiate on any of these, or you’ll know what to address right away if the concern is not a dealbreaker.
You’ll know what to prioritize improving first.
A home inspection is never perfect. Your home inspector's report will tell you a lot about the condition of the systems, equipment, and structure of the home, and when to prioritize improvement or replacement.
Insurance
Your homeowners insurance company may request a separate inspection which includes the electrical system, plumbing, roof and structure, and the HVAC system to determine the level of risk in covering your house. Your home inspector can often conduct the insurance inspection, which is typically quicker and more cursory, while they complete the full home inspection and share their findings with the insurance company.
If the inspection report reveals certain hazardous or dangerous conditions, your insurance company may not insure the home.
Can I waive a home inspection contingency?
You can waive a home inspection contingency. In a competitive real estate market, some buyers might be tempted to skip the home inspection to entice a seller or speed along the home closing process. The National Association of Realtors (NAR) reports that buyers are less willing to waive home inspections than they had been recently when the housing market was flooded with buyers and limited inventory during 2021. A NAR survey reports that 19% of buyers waived the inspection contract contingency in December 2022, which is down from the peak of 27% in July 2021. Forbes reported in a 2022 survey that “Almost 40% of survey respondents who bought a home in the last five years cited the cost of a home inspection or locking in a lower home buying price as a reason to waive a home inspection.”
It’s important to understand removing the inspection contingency means that you give up your right to ask the seller to lower the price, provide a credit for the needed repairs, or make the repairs before closing if the inspection report uncovers major defects. You do not lose the opportunity to have the house inspected, but you lose the option to use the results of the inspection to negotiate a more favorable price. Especially if buying your first home, you should understand this risk if you’re waiving and budget accordingly.
Before you make an offer on an uninspected house, make sure you've carefully considered what negotiating away a home inspection is costing you and how you might mitigate the risks.
Here are a few options to consider when you think removing the home inspection contingency will help make your offer more appealing:
- You can remove the contingency, but still get the home inspected. You can negotiate with the seller in advance about what types of repairs or defects you're willing to overlook.
- If you waive the home inspection contingency, get the home inspected and find intolerable results, you have lost the option to negotiate a lower price, or ask the seller to make repairs. However, you may still be able to walk away from the deal. In this instance, you may lose your deposit, but that would be better than getting stuck with a house with catastrophic defects that you must pay for.
What happens next?
If your offer with home inspection contingency is accepted, congratulations! You’ll now need to have the home inspected before the end of your contingency period. Learn in more detail what home inspectors look for and what to expect on the day of.
Once the seller accepts your offer, you're likely to apply for a mortgage. Your mortgage company almost always requires you to have insurance. Learn more about how to select homeowners insurance.
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