This article is part of a series that explains the different kinds of contingencies that can be included within a real estate purchase agreement. Today, we will take an in-depth look at the home inspection contingency in particular. Home inspection clauses are a common element in purchase contracts. So it’s important to understand how they work.
Home Inspection Contingencies Explained
Within the context of a real estate purchase agreement or contract, a “contingency” is a condition that must be met — or an action that must be completed — in order for the sale to move forward. There are several different kinds of contingencies, including one that pertains to the home inspection.
Definition: A home inspection contingency is a clause written into a real estate contract that gives the buyer the right to have the house inspected by a professional inspector within a certain period of time. It also allows the buyer to cancel the contract (or negotiate repairs) if they are not comfortable with the inspector’s findings.
How the Process Works
To understand how a home inspection contingency works, it helps to consider it within the broader context of the buying process.
The process usually goes something like this:
- The buyers make an offer to purchase a particular home.
- The buyers include an inspection contingency within their purchase agreement.
- The seller accepts the offer and the escrow process begins.
- Shortly after that, the buyer arranges for a home inspection to be completed.
- The inspector evaluates the property’s interior and exterior, electrical system, plumbing, roof, foundation and more.
- The inspector writes up a detailed inspection report and gives it to the buyer.
- Based on this report, the buyer can do one of three things: (1) accept the home as-is, (2) request that the sellers make certain repairs, or (3) walk away from the deal.
So the home inspection contingency gives the buyers the right to order an inspection, and to back out of the deal if they’re unhappy with the results. Most importantly, it allows the buyer to recover the earnest money deposit they provided when they first made the offer. *
* Important note: In order for the buyer to recover the earnest money deposit, it has to be clearly spelled out in the contract (see example below). Otherwise, the buyer could end up forfeiting the deposit. This is usually how it works, though laws and procedures can vary from state to state. Consult with a local real estate professional to be sure.
Example of a Home Inspection Contingency
Below, you’ll find an example home inspection contingency that might be included within a real estate purchase agreement. This sample uses common language that is often used within such contingencies.
Example home inspection contingency:
The Buyers’ offer is contingent upon a satisfactory inspection within ten (10) days. Upon receipt of the results of such inspection, the Buyers may request in writing at any time within that ten (10) day period that the Sellers make certain repairs or that the Sellers reduce the sales price to compensate for such defect(s). Such a request to repair or reduce the price does not terminate the contract and the Sellers shall have ______ days from receipt of such request to agree to make such repairs or reduce the sales price. If the Sellers do not agree, the Buyers shall have ______ days to waive the contingency and accept the property “as-is” or to declare the contract null and void. Earnest money and accumulated interest will be returned to Buyer within 48 hours upon written notification to Seller or his/her agent that contract has been terminated by Buyer.
Note: This is just a generic sample of a home inspection clause. It might not be applicable in all situations. Real estate documents and procedures vary.
Timeline: How Many Days Should it Cover?
In some states, there is a standard or default number of days for the home inspection contingency. But there may also be a blank line where the buyer can enter an alternate number of days.
For example, the standard purchase agreement might state that the “Buyer has 7 (or _____ ) days to request a home inspection.” In this case, the default number of days for the home inspection contingency is seven. But it can be set for a longer or shorter time period, as long as the buyer and seller agree on it.
The standard, or customary, number of days allowed for a home inspection can vary. In most cases, the buyers will have the property inspected within days of the purchase agreement being signed. So these clauses are usually set for somewhere between five and ten days.
Once the inspection has been completed, the buyers’ agent will typically write up an addendum to the original purchase agreement that removes the home inspection contingency. And the transaction can then move forward unimpeded.
Disclaimer: This article is intended for educational purposes only and does not constitute legal advice. Real estate procedures and documents vary from state to state. Consult a real estate professional in your area if you have specific questions about this subject.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author