What is an inspection contingency?

In a nutshell:

Also known as a “due diligence contingency,” the inspection contingency is a clause in a purchase agreement that grants buyers a predetermined amount of time during escrow to perform any necessary inspections.

Note: For buyers in Texas, an Option Period is exercised in lieu of an inspection contingency. Much like an inspection contingency, this is a specified period of time for buyers to do their due diligence, complete inspections or have repair estimates done. The difference, however, is that the option period also allows buyers to terminate the purchase contract entirely for any reason without risking their earnest money deposit.

Why use an inspection contingency?

As a buyer, an inspection contingency can be a bargaining chip. You can invoke an inspection contingency to back out of a deal without forfeiting your earnest money deposit if a seller is unwilling to have any necessary repairs done or offer you credit to complete the repairs after closing.

If a seller provides upfront inspection reports, they may receive offers with inspection contingencies waived. Offers with a long inspection contingency won’t get first consideration.

What happens during the inspection contingency period:

  • A home inspector will come out to inspect the property and review all disclosures.
  • If more detailed follow-ups are needed, you’ll get specialists to come out and inspect (ex: plumbing, foundation, termites, etc.).
  • If major issues come up, buyers can then choose to back out of the offer or negotiate for repairs or closing credits.

What to do next:

Presuming you have an inspection contingency, after reviewing your home inspection report, you can choose one of the following courses of action:

  • You can cancel the purchase agreement
  • You can just continue with the purchase
  • You can try to renegotiate the price or ask for credits
  • You can ask the seller to do the needed repairs

If you want to back out of the purchase using the inspection contingency, you’ll need to state that you’ve read the inspection report, and that you find the home’s condition unacceptable. You may be required to spell out specific problems with the property. If you do, and the seller addresses these issues, you may be forced to go through with the purchase or be in breach and forfeit your earnest money.

If you’re ok with the findings of the report, and want proceed with the purchase contract as planned, go ahead. This is typical in cases where an inspection only returns minor issues. In these cases, your inspection report will serve as a guide for future repairs and maintenance, and as your owner’s manual.

If you want to negotiate, the best strategy is to focus on high cost repairs. You’ll often have more luck asking the seller for a reduction in price than asking the seller to do the repairs for you. Many sellers find that doing the repairs for a picky buyer can be stressful.

Your buying agent will assist you with facilitating any home inspections and/or contingency negotiations.

Keep Calm and Inspect On

Stay on top of your purchase contract and all its contingencies. Pay close attention to your inspection window, as that’s your last chance to back out based on repairs concerns. Hire reliable inspectors and ask for their reports within 24-48 hours. Last but not least, try to see the big picture when negotiating repairs or credits with the seller.

Related Buyers FAQs

How does buying with Opendoor work?
Can I use my own agent to buy with Opendoor?
Why can’t I buy directly on all homes?
How does working with a partner agent differ from buying directly?
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