Buying a home is one of the most significant purchases — and financial investments — people make in their lives. Including a home inspection contingency with your offer is one of the most effective ways to protect that investment.
Some buyers may choose to waive a home inspection in a competitive market to make their offer more appealing to the seller. While this may seem a smart move to some buyers, it shouldn't be taken lightly and without thorough consideration first.
Whether you're looking to buy a home now or in the future, let's look at home inspection contingencies and why they are so important.
What Are Home Inspection Contingencies?
When looking at a home, prospective buyers will hear the terms home appraisal and home inspection tossed around as part of the buying process. While most real estate transactions require a home appraisal, home inspections are not mandatory and are done at the buyer's request.
With a home inspection contingency, the buyer is telling the seller they will buy a home for a set cost as long as a home inspection comes back free from major issues. That might include finding significant problems with the roof or electrical system or even issues with the foundation of the building. The home inspection contingency provides buyers with the peace of mind that they're buying a home that won't unexpectedly turn into a money pit when they start unpacking their moving boxes.
If a home inspection yields several significant issues, the contingency allows the buyer to back out of the deal without being penalized for renegotiating the price.
A top-notch real estate agent can help you write a home inspection contingency into your offer. Read on to learn more about how to protect your interests alongside your realtor when you go into purchasing negotiations.
What Do You Get With a Home Inspection?
A third-party inspector will tour the property during a home inspection looking for the standard safety, structural, and condition issues with homes. The inspector will create a report from their findings and make suggestions for how to correct any problems.
For example, the inspector might notice the electrical outlets in the kitchen are not to current codes, and the lights flicker when they turn on the switch. The inspector will report that the home has electrical issues that need resolving to bring the home's system up to code and make it more functional.
Some homes may require more than a general inspection, especially if the first inspector sees any areas of concern. If the inspector sees issues with a chimney or evidence of a pest problem, depending on your offer, you can bring in an expert who can advise you on the root cause of the problem and how to resolve it.
What Don't You Get With a Home Inspection?
While a home inspection looks for potential red flags in a home's condition, it is not the same as a home appraisal.
Mortgage brokerages frequently require appraisals to ensure a buyer is not taking out a mortgage for more money than a home is worth. That protects their interest in ensuring the borrower repays their loan. If an appraisal comes in with a home value below what the buyer has offered, the lender will likely require the buyer to make a larger down payment to make up the difference.
What Can You Expect After a Home Inspection?
After receiving a report from the home inspection, including any feedback from specialists, you can withdraw or renegotiate your purchasing offer if you don't like what you see.
During renegotiations, you can ask the seller to do one of a few things:
- Remedy some or all of the repairs and updates identified in your inspection report
- Lower the offer price
- Offer an allowance to be used on having the repairs made yourself
How Much Does a Home Inspection Cost? Is It Worth the Expense?
Virtually no part of the home purchasing process is free, including getting a home inspection. With so many other costs to cover, some buyers may wonder if it's really worth doing a home inspection before closing the deal and taking ownership.
Buying a home takes a lot of money. In addition to making a down payment and committing to making monthly mortgage payments for 15 to 30 years, homeownership includes additional expenses, such as homeowners insurance, HOA fees, maintenance and repairs, furnishings, and the anticipation of higher utility rates. These expenses are ongoing on a monthly or annual basis.
A home inspection is a relatively smaller expense, costing between $300 and $600. Considering how much you'll spend buying and owning a home over time, it has a comparatively low price tag. It also benefits from being a one-time expense paid while a home is in escrow.
There are other ways to reduce costs during the home buying process if you are looking to save money. For example, engaging a low-commission real estate agent gives you access to a real estate expert – often from nationally acclaimed brands — for a bargain price.
Is a Home Inspection Contingency Right for You?
As with all real estate transactions, deciding whether or not to include a home inspection contingency in your purchase offer is a personal decision.
While a home inspection can give the buyer peace of mind, it may also cause a seller to reject one offer in favor of another with fewer contingencies. In a seller's market, where there is more demand for homes than properties available for purchase, some buyers choose to skip the inspection process because it makes their offer more appealing to the sellers.
By including a home inspection contingency, you can also plan to draw out your escrow process by at least a week, if not more. Not only does it take time to complete the inspection and produce a report, but you can also plan to spend time renegotiating with the sellers. In some cases, the seller may have to complete repairs or updates before you can close on the house, which can take weeks.
Don't let these factors scare you from adding a home inspection contingency to your offer. First-time buyers, in particular, can benefit from having their homes inspected before taking ownership. It can save you time and money in the long run and ensure that the money you invest in buying your house will pay off in the short and long term.
You should also consider including a home inspection contingency if you buy an older home. While even new bargain builds can come with issues, older homes are far more likely to have costly problems, particularly with water damage, crumbling foundations, and outdated plumbing and electrical. These issues may not cause you concerns if you're an avid DIY-er with plenty of skills to make repairs.
However, if you're a novice to home repairs, a home inspection during the buying process can save you a headache down the road.
This article was produced and syndicated by Wealth of Geeks.