Real Estate Explained: Unpacking the all important home inspection contingency

A professional home inspection, written in the form of a contingency, affords the would-be buyer protection in the event that there are unforeseen issues with the underlying property. In my experience, at least, this is the most invoked contingency among the various contingencies that are available. 

A typical inspection in my area (DC Metro) will cost the buyer anything from $350 to $500 or more depending on the size of the property and can take anything from one hour to two hours on average. Contractually, an inspection contingency can be expressed in two ways: 'Right to cancel' which affords the buyer the opportunity to withdraw from the contract, no questions asked… or the more buyer friendly 'right to negotiate' which gives the buyer the chance to negotiate the cost of would-be repairs and or withdraw from the contract.

If the buyer/s back out/walk within the contingency period (typically 3 to 7 days), the attached insurance policy in the form of an earnest money deposit (aka good faith payment) which averages around 3% of the agreed upon purchase price, but can go higher in competitive scenarios, will be voided/returned. 


Here is a breakdown of what a typical home inspection will cover. 


Structural Issues


A professional inspector can identify any structural problems with the property, such as foundation issues, roof damage, or structural instability. Addressing these matters sooner than later can prevent costly repairs later on and or indicate whether the price is justified.


Safety Concerns


Inspectors can identify safety hazards within the home, such as faulty electrical wiring, gas leaks, or mold growth. Addressing these concerns ensures the safety of occupants and can prevent accidents or of course potential health problems down the road.


The Condition of Major Systems


Inspectors evaluate the condition of major systems in the home, including heating, ventilation, and air conditioning (HVAC), plumbing, and electrical systems.


Estimating Repair and Maintenance Costs


By highlighting areas that need repair or maintenance, a home inspection helps buyers negotiate with sellers to cover repair costs or adjust the sale price accordingly. It also provides buyers with an estimate of the immediate and future expenses associated with owning the property.


Peace of Mind


For both buyers and sellers, a home inspection provides peace of mind by offering an unbiased assessment of the property's condition. It helps buyers make informed decisions about their investment and gives sellers the opportunity to address any issues before going to list.


Legal Protection


In some cases, a home inspection can provide legal protection for buyers if undisclosed issues arise after the sale. Having documentation of the property's condition at the time of purchase can help resolve disputes and mitigate potential liabilities.


SUMMARY/MY TAKE


While I have never had a buyer walk due to the results of a home inspection, it does of course happen. Overall, most inspections yield minor problems such as a leaky faucet or the lack of a GFCI outlet. In Washington DC, for instance, the seller is required to disclose known defects via a seller disclosure and property condition statement which in addition to a strong set of eyes can be helpful when it comes to determining the property's condition from the onset. 


In competitive scenarios, I advocate for what’s called a 'pre-inspection' whereby the buyer and their agent/s will ask for permission to perform an inspection before writing an offer, the goal of which is to exclude this contingency from the contract which of course is an attractive proposition for a seller. If the listing is hot and an offer deadline has been set then it would behoove an interested party even more, but get ready to include an escalation clause along with your offer. More on that topic another time. 


In the meantime, happy hunting! 




Location: Washington, DC, USA

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