How does the home inspection contingency work?

You’re so excited! After all the time and effort to get your home ready to put on the market, all the anticipation as each potential buyer views your home, you now have a ratified contract. You’re done, right? Unfortunately, not yet…

Your ratified contract will most likely have contingencies on it (see my previous post: “The Steps to Buying a Home”), including a home inspection contingency. Within a specified period of time (typically 7-10 days from the date the contract was ratified), the buyer will hire a home inspector to inspect your home and then send you an addendum to the contract removing the home inspection contingency. More often than not, this addendum contains a list of items the buyer would like you to address in order for the contingency to be removed.

The home inspection serves many useful purposes from the buyer’s perspective. For many buyers, this is their first home, and a good home inspector is able to explain how the heating system works, indicate where the main water shut off valve is, make maintenance suggestions, etc. I learn something new every time my buyers have a home inspection! The home inspector will inspect things that were not able to be seen when the buyer and their agent went through the house such as the condition of the attic and roof. The home inspector will also inspect the condition of items that the buyer and their agent have no expertise in such as the heating and cooling systems, plumbing, electrical systems, etc.

I always share with my buyers that the home inspection is a time for them to learn how the home they wish to purchase operates, as well as learn things about the home that they would not have learned during the initial house hunting tour. It is not a time to find a way to fix things that the buyer was aware of when they made their offer.

In Virginia, paragraph 7 of the Regional Sales Contract states that the “Seller warrants that, except as otherwise provided, the existing appliances, heating, cooling, plumbing, electrical systems and equipment, and smoke detectors (as required), will be in normal working order as of the Possession Date.” Sometimes during the home inspection, it is discovered that the above systems are not in normal working order. As a courtesy, the buyer’s real estate agent will let the listing agent know about these items so that the seller can ensure all is in normal working order by the time of settlement.

Aside from what paragraph 7 covers, the home inspection might also turn up things that the buyer would like the seller to repair and/or replace. As the seller, you have several options if you receive an addendum removing the home inspection contingency that contains a list of items the buyer would like you to address: agree to everything on the list, don’t agree to anything on the list, or compromise.

If you agree to address everything on the list, the home inspection contingency is removed.

If you don’t agree to address anything on the list, the buyer can either continue to proceed with the contract, counter-offer with a revised list for your consideration, or they can void the contract with no penalties or further obligations. The buyer is also entitled to get their earnest money deposit back.

Why is the buyer allowed to back out of the contract with no penalties? Because the buyer made the contract contingent on a home inspection; this was their assurance that they would not be forced to purchase a property that had a deficiency they didn’t feel they could live with. If the seller and buyer cannot come to an agreement, the contract becomes void.

In cases where the seller is not in total agreement, more often than not both parties are able to agree to a modified list. Occasionally, both parties cannot come to an agreement. This is where a good real estate agent can help negotiate a compromise that meets the needs of both buyer and seller. I have yet to be in a situation where a contract is actually voided because the buyer and seller could not come to mutually agreeable terms. The negotiation process to get to this agreement is different in every situation.

One time I was working with first time home buyers who would not have a lot of extra cash to replace something major if it broke shortly after they bought the house. The home inspector indicated that the heating system was at the end of its predicted life span so the buyers wanted the sellers to replace it. The sellers didn’t feel they should be required to replace a system that was working, but the buyers were afraid to proceed with the potential of a hefty purchase in the near future. I asked my buyers if they would be comfortable moving forward with the purchase if there was a home warranty in place. They were, and the sellers agreed to purchase the home warranty for $380 instead of replacing the heating system. My buyers had the assurance they needed that there was not an expensive replacement in their future, and the sellers did not have to replace a system they didn’t feel needed replacing. Everyone won!

Since then, if the seller has not already purchased a home warranty, I purchase a home warranty for all of my buyers. The peace of mind that it gives both my clients (and me!) cannot be replaced.

Have you ever had a home warranty on house you own? Did you ever use it? Was it worthwhile? I’d love to hear your story!