WRITTEN BY BENNY L. KASSPOSTED ON WEDNESDAY, 27 SEPTEMBER 2017
Question: We are selling our house and have just received an offer to purchase. The offer contains a contingency for the buyer to obtain a home inspection report.
The buyer is asking for a general inspection contingency, but our real estate broker is advising us to use the specific inspection contingency. Can you explain the difference and give us some assistance?
Answer: In my opinion, it is imperative for a homebuyer to obtain a home inspection after the contract for sale is signed by all parties.
Buyers often purchase real estate based on emotions rather than facts, and a good home inspection is important to satisfy the purchaser that the property is substantially in sound condition.
A buyer should always include in a sales contract a contingency to the effect that the contract is contingent on the purchaser obtaining, at purchaser’s expense, a satisfactory home inspection within three or five business days after the real estate contract is ratified.
Sellers may think, at first blush, that an inspection is not in their best interests. However, if the seller stops and thinks about it for a moment, it becomes very clear that even from the seller’s point of view, it is advisable to let the buyers have a short contingency to back out of the contract if they are not satisfied with the condition of the house.
I would rather have a purchaser back away early in the process than wait until the very last minute and raise all sorts of problems and concerns on the day of settlement.
Of equal importance, if the purchaser has obtained a satisfactory home inspection report, that same purchaser will be hard-pressed to raise issues about the condition of the house on the day of settlement. Often, I have heard sellers tell buyers “you removed the home inspection contingency; if you have a problem with our house, look to your own home inspector. You could have backed out of the contract based on the inspection contingency.”
As you have indicated, there are two basic inspection contingency arrangements. The first is known as a general contingency, which gives the buyers the absolute right to back out, if for any reason whatsoever, they are dissatisfied with the inspection report. In practical terms, however, buyers often tell sellers that the contingency will be removed if the seller makes certain repairs.
The other contingency is known as the “specific contingency,” which works likes this: After the buyer has completed the inspection, the buyer must submit a list of items to be repaired or corrected to the seller. The seller has a couple of days to advise the buyer whether they will do any or all of the items on the list. The buyer then has one additional day after receiving the seller’s response in which to determine whether to buy the property or to declare the contract null and void.
Obviously, from a buyer’s point of view, the general contingency is much preferred. Basically, the buyer can walk away from the house for any reason whatsoever, even if he/she does not like the color of the paper on which the inspection report is written. On the other hand, the specific contingency is clearly much better for the seller, since it narrows down the issues, and gives the seller the opportunity to correct certain defects, rather than lose the buyer.
Needless to say, from your point of view as the seller, the specific contingency is in your best interests. However, from a psychological and a marketing point of view, if the buyer is demanding the general contingenc, you might be suspect as to why you are insisting on the specific contingency. Keep in mind, your buyer does not know the house at all, and if they feel you are trying to hide something from them, they may become very hesitant to go forward with the purchase of your property.
My own suggestion is to rely on your real estate broker’s advice in this case. If your broker truly believes the buyer will not sign a contract without the general inspection contingency, then clearly you should use that form. On the other hand, if your broker does not believe the buyer really cares, then the specific contingency should be included in your sales contract.
You have indicated, however, there is no time limit on the contingency. This is not acceptable. If you do not have any time limitation, then the buyer literally can back away from the sale on the date of settlement by producing an inspection report that is unsatisfactory. You should limit the inspection contingency to a period not to exceed three or five days after the sales contract is signed.
You should also insist, however, as a seller, to obtain a copy of the entire inspection report, whether or not the buyer raises any objections based on that report. After all, if the buyer raises problems later at the settlement table, it would be very helpful to have a copy of that report in your possession.