Contingencies in real estate purchase agreements allow purchasers of homes to terminate the contract based on whether the transaction meets the contingency. A contingency allows the buyer to make the sale contingent on having the condition met. One such contingency is a home inspection. Other contingencies include an appraisal contingency and financial contingency.
Home Inspection Contingency
In a home inspection contingency, buyers can terminate the purchase contract based on what is reported in the home inspection, provided they have not waived the contingency. The home inspection contingency allows buyers to have the home inspected to ensure that there are no underlying problems with the home.
If the home inspection does not cite any major problems with the home, the contingency is removed, and the transaction moves forward. A home inspection contingency is a key component of a real estate purchase agreement and should always be included in order to protect the purchaser.
In a hot real estate market, buyers may be tempted to waive the inspection. It is inadvisable to waive the home inspection contingency. Most homeowners will have the home staged and make cosmetic changes to the house so that it is appealing. These cosmetic changes may be intended to hide flaws or distract the purchaser from noticing issues with the home.
A professional home inspector generally inspects the home’s heating, venting, air conditioning, plumbing, and electrical systems. Home inspectors also examine the home’s foundation, roof, drainage and flooring. A general home inspection does not necessarily test for mold, termites, rodents and lead. A buyer can retain specialized inspectors to look for these issues as well during the home inspection contingency period.
Home inspectors should be independent. Therefore, homebuyers should not simply rely on the seller’s inspection report. Ideally, the inspector chosen should be licensed and independent from all parties to the transaction.
Nature of Real Estate Transaction
According to the National Association of Realtor’s Realtors Confidence Index Survey data, about 76 percent of real estate transactions were completed without any delays or glitches from December 2018 – February, 2019. Seventy-four percent of closed transactions had contingencies, of which 56 percent were home inspection contingencies. Of the total number of real estate contracts, only 20 percent of contracts that experienced delays were due to home inspection or environmental issues.
Homes that Fail the Inspection Contingency
Real estate transactions that fail due to home inspections typically involve major issues. Homes that are purchased by investors at foreclosures or auctions and then renovated to make a quick sale often dress up a poorly-maintained home with “quick” fixes. These homes are usually in a state of disrepair due to neglect by the prior owner. The investor only makes repairs that will help sell the house quickly, often overlooking issues involving the home’s structure. Often, bathrooms are remodeled to hide issues with moisture retention and mold growth.
Homes that are over twenty years or older up will also have major issues. These homes will have problems related to plumbing, roofing and heating as these systems do not last beyond 10-20 years. Older homes also have problems with the foundation, framing and drainage.
A trained licensed inspector can detect systemic problems with the home. Since the home purchase is often the single largest purchase for most individuals, it should be made with careful consideration utilizing all of the contingencies that are allowed. Home inspection contingencies are there to protect the homeowner.
Towson Real Estate Lawyers at Huesman, Jones & Miles, LLC Handle Complex Real Estate Contract Litigation
If you are wondering about waiving contingencies or adding contingencies to your real estate transaction and need advice, an experienced Towson real estate lawyer at Huesman, Jones & Miles, LLC can help. Contact us online or call 443-589-0150 to schedule a consultation. Our offices are located in Towson and Hunt Valley, Maryland, where we assist clients in Baltimore, Bel Air, Columbia, Westminster, Essex, Monkton, Sparks, Parkton, Pikesville, and throughout Baltimore County, Carroll County, Hartford County and Howard County.