A Seller's Guide to Home Inspections and Contingencies

A home inspection is designed to help potential homebuyers get all the information they need on a home in order to make an informed decision before purchasing. During a home inspection, the inspector will analyze various aspects of the home, focusing on serious defects that will cost the potential buyer a lot of money on top of the purchase price. 

An inspection gives buyers an opportunity to negotiate with the seller by either asking the seller to fix the repairs or by reducing the price of the home to compensate for the home's issues. 

With that said, sellers need to pay close attention to what a home inspection entails to improve the likelihood of securing the sale. For this reason, we're going to guide homeowners on what an inspector will look for during the inspection, what contingencies are, and the difference between reasonable and unreasonable contingencies.

What Does a Home Inspector Look For?

The home inspection process can be stressful for sellers, especially since this is one of the most influential factors when it comes to a potential buyer purchasing a home. A home inspection typically takes two to four hours but can take more time depending on the size of the home. 

One of the first things that an inspector will look at is your home's HVAC system, interior plumbing, and electrical systems to ensure that nothing is running faulty and that it's operating efficiently. 

Along with this, an inspector will examine your home's roof, attic, and visible insulation. An inspector will also check things like walls, ceilings, and floors to ensure there are no issues such as cracks and water damage that can compromise the home. 

Other things that an inspector will look for is whether the home's windows and doors are in working order. Lastly, a home inspector will check the basement and overall foundation and structural components to ensure the home is safe to occupy and up to par overall.

Common Reasons Home Inspections Fail

Many sellers are surprised when they see that the home inspection report presents a list of repairs that they need to address. This can be alarming for sellers. However, the best way to combat an inspection failure is by being proactive. Here are a few common reasons home inspections fail. 

• Roofing issues such as missing shingles or leaks
• Electrical problems such as wiring not being up-to-code
• Plumbing issues including leaky pipes and sewer problems
• Cracking foundations and basement water damage
• Mold
• Termite damage
• Windows and doors that don't open and close, as well as, failing window seals

What are Contingencies?

A contingency clause is an action that must be met before a real estate contract can become binding. Ultimately, a contingency becomes part of a binding sales contract when both parties (buyer and seller) agree to the terms and sign on a contract.

One of the most important contingencies that homes sellers should be aware of is the home inspection contingency. With a home inspection contingency, the buyer will make an offer on a home that is only valid in the event that the inspection report didn't reveal anything that was already made known or the inspection didn't uncover issues with the home that the seller isn't willing to negotiate on price or repair.

Let's take a look at one scenario. A potential homebuyer puts an offer down on their dream home. The seller agrees to the offer and the buyer moves forward with an inspection. Upon getting the home inspection, new information is revealed about the home.

The home has hidden water damage on the roof along with mold on the ceiling. The homebuyer agrees to still purchase the home at the selling price with the stipulation that the seller must fix the water damage and service the home for mold remediation. The homebuyer then submits their offer with this new contingency in place, allowing the seller to either accept or reject it.

Keep in mind, if the seller accepts the contingency, both parties can still back out if conditions aren't satisfied. For example, if the seller decides to fix the water damage but did not follow up with mold remediation services, the buyer has the opportunity to withdraw their offer as the seller did not follow the agreement. 

Reasonable vs Unreasonable Contingencies

No home is perfect, which means a home inspection report is bound to come up with an issue, even for newer homes. With that said, it's important for sellers to understand what is considered reasonable and unreasonable contingencies.

Reasonable Contingencies

A reasonable contingency generally pertains to any structural damage to the home. Structural damage is anything that affects the home's core integrity. This can include things such as issues with the foundation, electrical, plumbing, and HVAC issues. This also includes issues such as water damage and mold. 

Structural damage doesn't just drive down the value of the home, it also leads to unsafe living conditions. For this reason, potential buyers can either negotiate with the seller and ask them to fix the damages before purchasing, or they can back out of purchasing the home without losing their earnest money.

Unreasonable Contingencies

Understanding what contingencies are unreasonable can be difficult for sellers to determine. After all, the goal as a seller is to get the home off of your hands. With that said, an unreasonable contingency will depend on the individual seller. An unreasonable contingency or a contingency that isn't necessary is cosmetic issues and normal wear and tear found in a home. These issues do not compromise the core integrity of the home.

Negotiating Repairs for Sellers

While there are certain home repairs that are required by a seller for a buyer to purchase, sellers have the opportunity to negotiate contingencies on their end if those contingencies aren't required. 

Keep in mind that how much a seller can negotiate will depend on the current market. For instance, if you're in a hot seller's market, you will be in a better position to call the shots. Homes that are more desirable means that a potential buyer will be more willing to forgo certain issues and purchase the home.

At the same time, if you're not in a hot seller's market, you might find it more beneficial to honor the buyer's contingencies if it means securing the sale. However, doing this will depend on how much you will have to come out-of-pocket in order to honor their stipulations. 

If you're preparing to sell your home, navigating home inspections can be overwhelming. The good news is, it doesn't have to be. For sellers, it's best practice to make an organized list of all current issues that are present in the home and decide whether these issues require repair. Tackling repairs early on can help your home pass inspection and lead to a quicker sale.

In addition, it's a good idea for sellers to familiarize themselves with contingencies. While some contingencies will be required in order for a home to sale such as with fixing structural vulnerabilities, there are some contingencies like cosmetic fixes that a seller is not required to fix.