In the field of real estate, home inspections are an integral part of the purchase agreement, as well as of any contract thereafter between the buyer(s) and the seller(s). Buyers will want to assure themselves that the property they are purchasing is foundationally solid and doesn’t have any gaping flaws, while also satisfying all of the terms laid out in the contract. In real estate, a contingency addendum refers to a clause in the purchase agreement that lays out certain conditions and/or actions that need to be met to make the agreement enforceable, at least from a legal point of view. As a result, an inspection contingency addendum, in particular, is a legal addendum that allows the buyer to conduct inspections to evaluate the condition of the property and legally protect themselves before entering into any sort of deal.
An inspection contingency addendum is highly recommended in any sort of real estate transaction. That being said, the nature of said inspection(s), as well as the manner in which they are carried out, can differ greatly, and can only be assessed on a case-to-case basis. Having a real estate expert, as well as a local specialist can be very helpful, as they are likely to know what type of inspection(s) may be required.
For example, a real estate agent is likely to know the exact specifics of the sewage systems or issues that potentially bad weather conditions may present, and so, can help inspect the property’s facilities to make sure they are in satisfactory conditions. Structural strength, electric lines, plumbing, and ventilation, are all commonly inspected as buyers get ready to purchase a property.
Apart from the actual facilities that need to be inspected, an inspection contingency addendum typically also adds a timeline within which these inspections are to take place. This allows a buyer to enlist the expertise of a specialist if required, such as in the case of things like centralized air conditioning or heating systems. Moreover, an inspection contingency addendum, in the case that the inspection reveals unfavorable elements with regards to the property, allows the buyer to proceed in the following ways;
- If the inspections reveal no issues, the buyer(s) may move forward with the purchase.
- If the inspections prove that there are existing issues with the property, the buyer(s) are entitled to withdraw from the agreement entirely.
- If the inspections prove that there are existing issues with the property, the buyer(s) may request rectifications, renovations, repair, and/or a lowering of the price. In the case that such modifications are requested, a property inspection notice that contains all the findings of the inspection(s) will need to be presented to the seller. The seller(s) are subsequently entitled to confirm these finding(s) and can choose to accept the terms or withdraw from the original purchase agreement.
Adding an Inspection Contingency Addendum to Purchase Agreement
Generally, real estate agents recommend that such an addendum is added to the purchase agreement and that the inspection(s) is/are carried out as quickly as possible, with the ideal timeframe being within a few days after the agreement is made. When drafting such an addendum, it is best practice to review and establish the following within the inspection contingency addendum;
- A detailed, accurate timeline with a schedule, if possible, of the inspection(s) that the buyer(s) will be carrying out.
- A list of the types of inspections that are to be carried out. Typically, this is known to include structural and mechanical inspections for things like mold and lead. Additionally, the locality of the property may cause a need for additional examinations, such as inspections of the heating facilities in particularly cold areas and/or older properties.
- In the case that the inspections reveal existing issues, the method, and platform by which the seller(s) are to be notified, i.e., fax, telephone, mail, etc.
- In the case that inspections reveal existing issues, the method, and platform in which the seller(s) may legally respond.
All of the aforementioned things will need to be added to the addendum and established within the purchase agreement. This makes the sale of the property contingent on inspection(s) that meet the terms of the contract and are satisfactory in the eyes of the buyer.
The Property Inspection Notice and other Complementary Clauses
Once the inspection(s) is carried out, the buyer(s) are legally required to notify the seller(s) of the finding(s). To do this, a property inspection notice will need to be sent. This is a legal notice, along with copies of the inspection reports that need to be sent to the buyer. Once this process is completed, the buyer(s) will have the following options;
- If everything is found to be satisfactory, they can move forward with the purchase agreement.
- If the reports reveal unsatisfactory findings, the buyer(s) may opt to terminate the original purchase agreement.
- If the reports reveal unsatisfactory findings, the buyer(s) may request the seller to address these issues. At this point, the seller(s) may accept and carry out the requisite modifications, or decline and cancel the agreement entirely.
Other complementary clauses include things like the As-Is addendum, which states that the buyer(s) are entering into an agreement for the property “as is,” meaning that they are entering into a contract for the property in its current state. This may also include a without inspection clause, which prevents the buyer(s) from carrying out inspections. Additionally, such contracts may also see the use of a cost of repair contingency clause, which places a monetary cap on the amount needed for repairs. If this amount is exceeded in repairs and renovations, the buyer(s) may choose to terminate the contract. These are particularly important, and buyer(s) should be sure to thoroughly review the terms before entering into a purchase agreement.