Home Buyer 101: Home Inspection Contingency

Happy spring, fellow real estate connoisseurs. Though the smell of blooming flowers and the sound of birds chirping may stir happy emotions, this is also the sounding call indicating the time of year with competition and bidding wars for buyers and multiple offers for sellers (at least in the current state of the market in our area). The good news is we see a strong pipeline of coming soon properties so it is my hope that the market evens out a little in the coming weeks and becomes less chaotic for buyers.

When thinking of writing a competitive offer, for most buyers usually two things come to mind. The first being offer price, and the second being settlement date. Though these are both extremely important, I’m going to break down other decision points that can make or break the strength of your offer – in particular your contingencies. This week, let’s begin by covering the home inspection contingency.

Within the NVAR, GCAR, and MAR sales contracts (these are the local association that write and provide the sales contracts to Realtors) there are two options for your home inspection contingency.

The first is the right to negotiate and void. In this scenario you visit the home with your agent and home inspector, and the inspector educates you on the condition of the home and what repairs are needed. After the inspection a report is delivered by the inspector. You will work with your agent to put together an addendum listing the repairs you would like executed, and your agent will deliver this to the listing agent along with the home inspection report. This then begins the negotiation clock where you and the seller will negotiate back and forth on the listed items until you’ve come to an agreement. If you aren’t able to reach an agreement with the seller in the allotted time, you are able to void the offer entirely. Keep in mind, just because you include items on this list does not mean the seller has to agree to do the repairs – this is where the negotiating comes into play.

The second option is the right to void only. This is similar in that you visit the home with your agent and home inspector, and the inspector educates you on the condition of the home and what repairs are needed. The key difference with this option is based on the findings you as the buyer will decide whether or not you’d like to proceed with the contract and accept that you will have to make the repairs yourself if you move forward. Most of the time, from the sellers perspective this is going to be the more enticing option because it eliminates the buyer delivering a list of items to be repaired. That said, if there is something that the buyer is willing to walk away over sometimes the seller will agree to make the repair even if it is a right to void scenario.

My recommendation to be competitive if you want to include a home inspection contingency – go right to void only with a quick turnaround time. What do I mean by turnaround time? Within the offer, you and your agent will outline a number of days for your home inspection contingency (essentially how many days you will need to get an inspector in the home and to deliver his report). The shorter the contingency period, the more competitive your offer will be. If my client wants to include a home inspection contingency in his or her offer, I’ll usually include a contingency of 3 or less day and the right to void only.

Many of your are probably wondering though, what are the chances of winning in this market when including a home inspection? It depends on location/type/condition/etc, but the truth is, if you are looking in a competitive segment of the market, your chances are slim. You will likely have to consider waiving your home inspection in your offer. One other option that many local agents will use is a pre-offer home inspection. To utilize this your timeline would look something like this: “An awesome home comes on the market on Wednesday. Bob and his agent go see the home on Thursday, and Bob has to have the house (he loves it!). Bob’s agent makes another appointment on Sunday to revisit the home with a home inspector. The home inspection goes well, so Bob decides to submit an offer before Monday’s deadline and waive the home inspection entirely.”

This is a great option for a buyer because you still have the opportunity to be educated on the home and make sure there are no major issues, and you can confidently waive the contingency. On the flip side, the negative is that you are paying for the home inspection up front and there isn’t any guarantee that you will win the bid. There are likely other buyers doing the same thing. A savvy agent will read the situation, speak with the listing agent, and do their best to determine if it is worth paying for this type of inspection. Personally, if I think the home is going to bid up past what my clients are willing to pay or I know others will likely waive their appraisal and my clients won’t, then I am honest about my clients’ chances and will usually recommend not going this route.

Your final option (and believe it or not this happens a lot in our market) is to waive your home inspection contingency entirely and accept that you’ll do an inspection once the home is your own. This is risky because you never know what repairs might come up. If you do go this route, it may be worth it to consider a home warranty just in case. Though this option isn’t ideal, some of the time this is what it takes to get your dream house.

In the following weeks, I’ll also cover your appraisal contingency, financing contingency, and association documents review period. Enjoy the lovely weather!

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