Home Inspection Contingencies 101: Examples, Timeline, Pros and Cons, and More

A home inspection contingency can protect your earnest money deposit if you have to back out of the deal due to major issues discovered during the inspection.

You’re not required to use such a contingency when buying a house. Like the inspection itself, this is entirely optional. But it’s worth considering, at the very least, because it could prevent you from losing your earnest money.

This guide explains: (A) what a home inspection contingency is, (B) how to include one in your offer, and (C) how it can protect you when buying a home.

Home Inspection Contingencies Explained

In the real estate world, a “contingency” is a specific condition that must be met, or an action that must be completed, in order for the sale to move forward.

Contingencies allow home buyers to back out of a deal if those conditions are not met, without sacrificing the earnest money deposit.

There are several different kinds of contingencies used by home buyers in real estate transactions:

• Home Inspection Contingency: Allows the buyer to have the house inspected by a professional inspector and cancel the contract or negotiate repairs based on the findings.
• Financing Contingency: Gives the buyer a set time to secure a mortgage loan. If they can’t get financing, they can withdraw from the contract without penalty.
• Appraisal Contingency: Protects the buyer if the property’s appraisal is lower than the purchase price, allowing them to renegotiate or walk away from the deal.
• Home Sale Contingency: Lets the buyer back out of the contract if they can’t sell their current home within a specified timeframe.
• Title Contingency: Allows the buyer to review the title report for any legal claims (liens) or other issues. If problems arise, the buyer can negotiate for resolution or terminate the contract.
• Other Contingencies: Depending on the transaction, there may be other contingencies, such as zoning, environmental inspections, or review of HOA documents.

The rest of this guide will focus on the home inspection contingency in particular.

This is one of the most common contingencies used by buyers, and for good reason. It prevents you from being locked into a real estate sales contract for a home that has serious issues.

How the Process Works (Usually)

To understand how a home inspection contingency works, it helps to consider it within the broader context of the buying process. While the process can vary from one buyer to the next, it usually works like this:

1. The buyers make an offer to purchase a particular home.
2. The buyers include an inspection contingency within their purchase agreement.
3. The seller accepts the offer and the escrow process begins.
4. Shortly after that, the buyer arranges for a home inspection to be completed.
5. The inspector evaluates the property’s interior and exterior, electrical system, plumbing, roof, foundation and more.
6. The inspector writes up a detailed inspection report and gives it to the buyer.
7. Based on this report, the buyer can do one of three things. They can accept the home as-is, request repairs from the homeowner, or walk away from the deal.

Important: In order for the buyer to recover the earnest money deposit, it has to be written that way in the contract. Otherwise, the buyer could end up forfeiting the deposit.

So the home inspection contingency gives the buyers the right to order an inspection within a specified timeframe. It allows them to back out of the deal if they’re unhappy with the results. And most importantly, it allows the buyer to recover the earnest money deposit they provided when they first made the offer.

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/standardized language that’s often found within these types of contract clauses.

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 example of a home inspection contingency clause. It might not be applicable in all situations. Real estate documents, laws, and procedures can vary from one state to the next. A local real estate agent or attorney can explain how it works in your area.

Pros and Cons of Using Them

On paper, a home inspection contingency might seem like a no-brainer. Of course you would want to have a property inspected before buying it. And of course you want the right to back out if problems arise.

But there’s more to it than that. As a home buyer, you also have to consider the seller’s perception regarding the use of contingencies. You have to consider the pros as well as the cons.

Pros: Peace of Mind, Earnest Money Protection

Home inspections offer peace of mind. They can protect you from unknowingly buying a property with hidden problems, such as structural issues, pest infestations, or faulty electrical systems.

Contingencies take it a step further by allowing you to exit the deal if serious issues arise and the seller won’t fix them. In such scenarios, a properly worded contingency could allow you to recover your earnest money deposit.

With this strategy, you have more options to consider. You can accept the home, request repairs, or simply walk away from the deal.

Cons: A Less Competitive Offer, Possible Delays

In a competitive real estate market, having too many contingencies could work against you. From the seller’s perspective, every contingency creates another reason why the deal might fall through.

In other words, a home inspection contingency could make your offer less appealing to the seller.

But much of this will depend on the current state of your local housing market:

• In a hot market, where multiple offers are common, home buyers should tread carefully when adding extra contingencies.
• In a cooler market, where homes take longer to sell, sellers tend to be more agreeable when it comes to accepting contract contingencies.
• In a “neutral” market that doesn’t strongly favor either party, decisions should be made on a case-by-case basis.

The inspection process and subsequent negotiations could also delay the closing of the sale. (Especially if the seller has to make requested repairs.) This might be a drawback, especially if you need to move quickly on the sale.

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 used in your area 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. Both parties must agree on the language used within the purchase agreement and sign the document, in order for it to become binding.

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 7 – 10 days of the purchase agreement being signed. So these clauses are usually set for somewhere within that range.

Once the inspection has been completed, the buyer’s agent will typically write up an addendum to the original purchase agreement that removes the home inspection contingency. At that point, the transaction can move forward unimpeded to the final closing stage.

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.