"Contingent on Inspection!" What Does That Mean?

"Contingent on Inspection!" What Does That Mean?

Article Courtesy of Heidi Herda, Herda Home Team - 612.807.4858

So you have made the decision that now is the right time to buy a home. As you're searching through listings you find the perfect home, but it says "contingent on Inspection," it may seem confusing.... can I buy the home or not?

Contingent on the inspection means that an offer has been presented to the seller(s) for review. The seller has accepted the buyer's offer with contingencies. Although there are usually a few contingencies that go with every offer, we'll focus on the inspection contingency portion. 

In the past, a home was presented on the market with the term "buying beware," meaning do your due diligence, get a home inspection, do your research etc. Now seller's are obligated to complete a seller's disclosure packet that is usually revised annually to ensure the proper disclosures are made by the seller. It's true that seller's may "forget" material facts over time or may not even know there're issues beyond the surface. Technically the term should be seller beware, not properly disclosing material facts could end poorly in some legal battle if known items were not shared with the buyer and issues came up shortly after the buyer's move-in. I recommend "disclosure is the best policy" even if repairs were properly made and no issues have surfaced since. Real Estate agents expect to see a few repairs/replacements on every disclosure.

As a seller lives in the home over time small issues come up and may need some maintenance. If the seller is not handy with small repairs or doesn't really feel it's a nuisance they may go unnoticed or left without repair. In that case, similar to a car, a needed repair ignored can cause other issues down the road. It's the same with a house, that's why a home should always be inspected. It's the job of the inspector to visually look at all mechanical components, check the city or county to ensure proper permits were pulled for electrical, making any additions, plumbing changes and so on. There're a lot of DIY projects that can take place on a home over time. Since codes constantly change it's important those repairs were made correctly and permits should be pulled. A buyer may be excited by the appeal of the home, but it's what is behind the walls, under the siding, safe electrical, a good roof, and reliable appliances and mechanical's that should also meet the expectations of the buyer. This due diligence on the buyer's end is making their offer contingent on the inspection. What the buyer is essentially saying in their offer is:  I will buy this home, at this price, and close on this date, provided that the home meets my expectations and if it doesn't, I may ask you (the seller) to make proper repairs so that I can proceed with the purchase.

The inspection fee can range anywhere between $350 - $500 depending on the size of the home and any extra inspections combined with it. It seem like a hefty sum of money considering what you would already be bringing to the table with your down payment and the money to pay your closing costs, but a home purchased with foundation issues or water issues could mean repair costs that surpass your financial means. The last thing a buyer wants is to be consumed with financial responsibility on a home they that was sound and secure. Hiring a well qualified and experienced inspector is very important and money well spent. In fact, I have had several buyer's walk away from a home that initially was "perfect" due to the inspection.

Now, circling back to our original questions, "Can I buy a home listed as Contingent on Inspection," the answer is possibly... 

Remember the buyer presented an offer to the seller and the offer was agreed to, provided the inspection proves the home meets the expectations of the buyer. If the inspector uncovers items that the buyer requests to have repaired at the seller's expense and the seller declines, the purchase agreement can be canceled mutually by the parties because they could not come to an agreement on the repairs. It's possible the item needing repairs or replacement is a roof. Depending on the size of the home, a roof can be an expense of $5,000 - $10,000 or more. With all the expenses that the buyer has to purchase the home, it's

likely they don't have money to immediately replace the roof. If the seller declines, they may not have the money either for the repair, or the sale of the home may be an estate, a home that is in foreclosure or a home that is being listed as a short sale. Essentially the property and it's owners are in distress and cannot make the repair. So the property is canceled by all parties and will change to active status. Depending on where you found this home in the first place, you should see it change to active or back on the market.

At any time during the inspection contingency phase another buyer can potentially view the property and if they like it, they could present a backup offer. Meaning, if the home inspection doesn't pass and the home becomes active again like we mentioned above, that second offer is ready to be negotiated and signed. Two things to consider in this scenario, writing a back-up offer on a home means that you will essentially be putting your home search on hold while you wait for the first offer to get through these contingency removal phases. Of course at any time, you can withdraw your backup offer and move on, but because both the buyer and the seller are invested in this purchase agreement, all parties usually work pretty hard to negotiate the repairs and have it come to terms. It's likely you viewing a home contingent on inspection and then writing an offer could only cause heartache when you fall in love with the home and then don't actually have the opportunity to buy it.

           

 The other very important cautionary thing to consider is why did the first buyer's back out? If it truly is based on the inspection, we're back to "buyer beware." You will want to make sure you have a well-skilled inspector to identify why the first people backed out. Your agent can also investigate further and usually get the information from the listing agent as to what went wrong. Sometimes an offer falls apart because of completely different reasons and it just happens to appear that it was the inspection that caused the cancelation. This is where you will not want to jump to any specific conclusions especially if you do feel like this is the perfect home for you. Have your agent follow-up and make sure it wasn't something as simple as maybe the buyer lost their job. Without a job, the buyer is no longer qualified for a loan and, therefore, cannot purchase the home. Make sure you get all the facts and then proceed cautiously.

Hopefully this blog has answered your questions, and gave you some insight on Real Estate terms and what is really happening behind the scenes when an offer is written. For more Real Estate terms and helpful home buying tips, check out this related article.  

Thank you for reading my Heidi Herda Real Estate blog, "I found the perfect home, but it says "Contingent on Inspection!" You can view more Real Estate blogs here, or "like" my Heidi Herda Twin Cities Real Estate page for more tips and tricks ~ Heidi Herda, Herda Home Team with Keller Williams Classic Realty ~ http://HomesSoldByHeidi.com ~ 612.807.4858 @heidihomesearch #herdahometeam