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What is a home inspection contingency?
An offer to purchase a property is a promise. It’s a promise to pay a certain amount of money on a certain day. Contingencies in an offer are a buyer’s way of making that promise conditional upon something happening.
In the case of an inspection contingency, the buyer promises to purchase the property, but only if their home inspector finds no defects when inspecting the home. Here is the exact language in the contract:
“This offer is contingent upon a Wisconsin registered or Wisconsin licensed home inspector performing a home inspection of the property after the date on line 1 of this offer that discloses no Defects.”
This is quite a bold powerful statement since it is rare that a home inspector will find no defects. The home inspection contingency puts a fair amount of power into the hands of the buyer, who will have choices after being provided with the inspector’s report.
- Buyer can ignore the defects and agree to move forward with the purchase despite them.
- Buyer can submit a Notice of Defect.
- Buyer can negotiate with the seller. Given that the alternative to negotiation may be a failed deal and going back on the market, the seller may be incentivized to agree to some repairs or financial consideration (like a price reduction). Negotiations could include other terms like post-closing occupancy, closing timeline, or virtually any other term in the offer.
Like with any negotiation, both sides of the transaction would do well to understand the motivation and strategic position of the other. If the seller feels it will be easy to find another buyer for the home quickly, they may be less likely to make serious concessions to the buyer. If the buyer knows that the seller has been having a hard time finding buyers for the property, and the taxes are quite high, and there are expensive HOA fees to consider, the buyer may consider being more aggressive, understanding the potential cost to the seller of going back to market with the property.
If both parties agree to a path forward, an amendment to the contract is drafted and signed to change the original agreement and include any new agreed-upon terms. This amendment should also include language waiving the inspection contingency. This means that the buyer is now satisfied with the condition of the property and the terms of the contract and will not be able to negotiate any further over the defects.
Two very important concepts should be understood when it comes to the inspection contingency, and are covered in other posts, go ahead and click the links below for more information on those topics:
