Inspection Contingency

TLDR: For this contingency, the buyer will need to have the property inspected, obtain the inspection report, and negotiate with you for repairs and/or credits.

Each contingency provides the buyer with the option to terminate the contract with their earnest money deposit in tow, but the inspection usually has the shortest time allotted and as such, is usually the first out that buyers will take. This happens when there's a difference of opinion regarding what repairs should be conducted or a credit provided by the seller after the inspection report is received: the buyer asks for more, the seller wants to do less. 

So, how does the inspection work? After the contract is signed and the earnest money deposited, the buyer will contact a local home inspector to come out to the property and conduct an inspection. Inspectors tend to be methodical and work quickly as they go through the house, taking notes, making suggestions for improvements or repairs, commenting when a specialist should be hired to further investigate, and taking photos of flaws throughout the property. All of this information is then consolidated into a report and provided to the buyer, who selects from the list which items to ask the seller to repair or compensate. 

After the buyer gives you the list of items they want you to repair or compensate for, you may be able to negotiate the specifics of what gets repaired and what gets compensated. Anything you agree to repair must be done by closing. 

Example: An Inspection Report

Inspectors use software to document and photograph all issues and send the report to the buyer. This gives the buyer the option to request repairs or a credit for each item, aggregating the issues into a handy list for the seller to review.

When should I compensate, and when should I make the repairs? 

There are a couple of circumstances in which you might want to provide financial concessions: first, if you’re strapped for cash, it may be easier to concede the cost of repairs at closing instead of paying a contractor up front to complete them. Second, if the timing for the repairs is unlikely to occur or finish before closing, a credit would allow the buyer to complete them when there aren’t time constraints. Exterior repairs often require dry, warm weather, so a credit for repairs involving exterior work might be better during cold months. 

Providing compensation is also the easier route since scheduling and overseeing the improvements with time limitations can become a hassle.

Tip: Keep the Receipts

If you decide to conduct repairs at the buyer’s and/or HOA’s behest, they will likely want to see the invoices and receipts prior to closing as confirmation that a licensed contractor completed the work.