What is an inspection contingency — do I need one?

A home inspection contingency is a clause that allows a potential homebuyer to back out of a purchase contract the property doesn’t pass the inspection. First-time homebuyers shouldn’t waive their right to an inspection without understanding the risks of doing so. 

When you are on the hunt for the perfect home, it is often very tempting to do whatever you can to quickly close a sale after making an offer. One way to make an offer more competitive is by waiving real estate contingencies, like a home inspection contingency. Experienced investors with experience renovating homes may be okay without a professional inspection, but other prospective buyers  should think twice before skipping it. 

Is a home inspection required?

A home inspection involves hiring a certified inspector to investigate the property. You typically get one when you’re buying a home so you can learn more about it and any issues that may not be visible at first glance. A home inspector will review a home’s plumbing, water and sewage systems, foundation issues, and electrical work, and also check the home for fire or other safety hazards.

Home inspections are generally not required, and some homebuyers even choose to waive the home inspection contingency to entice sellers. (In July 2021, 27% of homebuyers waived the inspection contingency according to the National Association of Realtors.) Your real estate agent can walk you through any local and state laws regarding home inspections (including a pest inspection) and whether they’re required for certain types of loans.

Buying real estate is a costly investment, and getting a home inspection is a critical step to ensuring that you don’t buy a house with hidden damage that could be costly to repair down the road. Additionally, an inspection report can be a powerful bargaining chip for homebuyers at the negotiation table.

How home inspection contingencies work

You can add what is known as a home inspection contingency to your purchase contract when you make an offer on a home. What a home inspection contingency does is protect the buyer in the event the inspection reports reveals issues with the home.

The way this real estate contingency works is that the offer on the home is contingent on the results of the inspection. Usually, this contingency gives the homeowner a certain time frame during the contingency period - often in the seven to ten day range - in order to respond to any issues revealed by the inspection.

A home inspection contingency clause allows you to:

• Negotiate a seller concession to cover the cost of needed repairs identified by the home inspection
• Lower the purchase price based on the inspection report
• Request that the seller fixes the damage themselves before the sale
• Choose to walk away if the damage is severe

If the issues are large enough to worry the buyer or give them second thoughts, then they can choose to renegotiate the purchase contract (by lowering the sale price or having the seller pay for repairs, for example). They can also walk away from the sale if a major issue comes up without having to give up their earnest money deposit. 

→ Here's when to walk away after a bad inspection

Why some buyers waive home inspections

Home inspection contingencies exist for the benefit of the buyer, but don’t give the seller any advantages, since they’re one step further from selling their home.

A seller's market, when demand for housing is high, can lead to bidding wars amongst buyers, inflated home prices, and waived contingencies. Prospective homebuyers are willing to do a lot to make their offer stand out, like paying in cash  (which bypasses the need for an appraisal contingency) or evening waiving a right to inspections.

The home inspection process only takes a few hours to complete and provides critical insight into the well-being of a home. The upfront cost of a home inspection is relatively minor and if the inspector catches any damage or potential issues, it could save the homeowner or buyer repair costs down the line. 

Related: Do you need a pest inspection?

Why you shouldn’t waive your inspection contingency

It’s easy to see why home sellers may not want to accept contingent offers and ask buyers to waive this contingency. After all - the last thing they want is for the buyer to discover an issue with the home that could convince them to walk away or that may lead to the seller paying for expensive repairs at the last minute. 

While home inspections aren’t legally required, it's generally a good idea not to skip out on them, even if it will save you some money. In the grand scheme of the homebuying process, inspections are fairly inexpensive and can reveal expensive problems that could later crop up down the road.

Taking this extra step before you close on the sale can save you from a lot of headaches or from having to bear the costs of surprise repairs when you want to be enjoying your new home.