If you’re looking to buy your first home, you need to make an offer on the house that you eventually select. This offer is more complex than simply indicating to the seller how much you would pay them for their house. It’s a legally binding document that is going to have many different clauses that impact how the entire process will play out.
Part of the document may include contingency clauses, such as a home inspection contingency. It’s important that you know how this works, what it is and why you may or may not want to use it in your own offer.
What does it do?
The home inspection contingency is fairly simple. The amount that you offer for the house is contingent on the house passing the inspection. If it does not, you’re not stuck in that deal and you can try to renegotiate. Some people decide to walk away from a house that doesn’t pass inspection and look for other options. Others will negotiate by offering a lower price for the house, factoring in the repairs that would be necessary.
What you decide to do is up to you, but this is a major benefit to you as a buyer. You don’t want to make an offer and then later find out that the home has a lot of issues that will have to be fixed, meaning that you have overpaid. The contingency is a way of protecting yourself from this sort of financial mistake.
Why wouldn’t you use it?
The main reason to forgo the home inspection contingency is that it may make it more likely that your offer will be accepted. For one thing, the seller doesn’t have to worry that the home won’t unexpectedly fail the inspection and that the deal will fall through. For another, they may just like the simplicity.
That said, it is a risk to offer without an inspection contingency because you never quite know exactly what you’ll find, especially in older homes. If the house doesn’t pass, the seller can say that you are still obligated to move forward with the sale. You may only be able to exit by forgoing your earnest money or if the deal fails a different contingency clause, such as the procurement of a loan.
Once again, you can decide if you’d like to use a contingency or not. Just make sure you know how it works and all the legal steps you can take to make the process go smoothly.