Are you worried about the many financial pitfalls that can occur when buying a property? Making the wrong move may mean you lose a deposit or buy a property that costs thousands in repairs. To put your mind at rest, you need to know about home inspection contingencies.
These contract clauses protect the buyer from buying above the odds or purchasing a house with hidden problems. Below, we discuss inspection contingencies and why it is essential you have one.
What Are Home Inspection Contingencies?
The purpose of a home inspection is for the buyer to check if there are any problems or issues with the home before they close the sale. The inspection will cover a number of areas, checking that no major problems are inherent in the property. This gives the buyer a level of safety, allowing them to negotiate the price, repairs, or to cancel the sale altogether if it is not for them.
A home inspection contingency is a clause placed in the contract between the buyer and seller before the sale closure. If any major problems come to light during the inspection, then the buyer can back out of the contract before closing. This is without any financial penalty, often as long as completion happens within a certain timeframe.
The foundations will be the first part checked. After this, other structural elements will be assessed, such as the condition of the roof and systems in place within the home. In the case of a new build, a home inspector will also check the structure before the drywall is laid.
When Do You Need One?
Home inspection contingencies are not compulsory. In fact, as the buyer will pay for the inspection, many people may avoid having one to lower the fees involved in a sale. However, this can result in a number of problems down the line if you purchase a house with underlying problems, or you are getting a mortgage and the appraisal comes in lower.
Appraisal Contingency
An appraisal contingency is different from a home inspection contingency. Once the home inspection is complete, the report will be provided to the buyer. If the buyer is happy and sees no major problems they can continue with the sale.
However, after this, the property will need to be appraised again by the mortgage lender (if the buyer is using one) once more. The reason for this is that the mortgage lender needs to protect their loan. If they provide you with the money which you fail to pay back, then they need to know the house they will receive is enough to cover the loan amount.
Very often, they may value the house lower than the amount the buyer needs. In this case, the buyer will have to make up the shortfall in the loan. That is where an appraisal contingency comes in.
This is a clause that says the home appraisal done by the lender must meet the agreed amount, or the buyer can walk away without penalty. This differs from a home inspection contingency in that it is determined by the amount the bank values the property at, not the general condition decided at the first inspection.
Both are in place to protect the buyer and should be seriously considered in any mortgage process. Without them, you risk losing your deposit.
Buyer Responses
In a situation that the home inspection does not go to plan, the buyer is left with two options. These are to request further negotiation or to disprove the offer.
In the case of request further negotiations, a thorough inspection contingency should have stipulations in place that outline the process for negotiations. Very often, a set number of days will be included in which the person selling a home has to make the repairs a buyer has asked for or to lower the sale price in accordance.
If the seller does not want to do this, the contingency should contain information on how the buyer can respond. This is usually a set amount of time in which they can back out of the sale or buy the property as-is.
If the buyer disproves the deal after the home inspectors report outright, then the contingency will include the right to claim their deposit back. This can often be a large amount of money, reiterating the importance of a home inspection contingency when buying a home.
Waiving a Contingency
There are a few situations in which a buyer may waive a contingency. If they are buying in a seller’s market, then waiving contingencies may give an advantage over other potential buyers. With fewer contingencies, the sale is likely to go through faster, which may be a draw for many people selling a home.
If you are a buyer in a seller’s market but still want to keep the contingency, then try to improve the deal in other ways. Offer to pay closing costs or increase the amount offered on the property on the deposit. Forgoing contingencies is a very risky affair.
What Doesn’t It Cover?
There are some specialized inspections that will not be covered under the home inspections. These are sewer inspections, chimney, and pest inspections. You can arrange these at an extra cost.
Get a Professional Inspection
In summary, there are very few instances when home inspection contingencies would not be in your best interest as a buyer. Make sure you contact a professional home inspection service before closing any sale and ensure these contingencies are written into your contract.
Your first stop for home inspections in the North East Ohio area should be Class Home Inspection. If you want an experienced, ASHI associate to give a thorough inspection of potential properties, then contact us immediately. Click here to view a sample home report, and see the extent of our services and experience.