As briefly discussed in a previous blog post, contract contingencies give buyers the opportunity to walk away from a contract for sale and purchase with limited if any repercussions provided they abide by the guidelines governing cancellation due to a particular contingency. Financing contingencies are a hot topic due to the recent financial meltdown that was largely a result of real estate financing. Financing is not however a contingency found in every contract. In the vast majority of contracts for sale and purchase, you will find some form of an inspection contingency. The inspection contingency is a very important card the buyers have to play, but care must be taken to abide by the timelines and requirements that govern your particular inspection clause. Miss a deadline and your inspection results will only serve to let you get an early start on all the repairs you have to make on that new home you are buying instead of having the seller make the repairs or cancelling the contract.
Contracts for Sale and Purchase will almost always have language already built into the contract concerning inspections. Normally there will be a specific section in the contract that deals specifically with what types of inspections a buyer can do, the timeline to complete the inspections by, the ramifications of the inspection results, an outline for cancelling the contract due to the inspection and the seller’s responsibilities based on the inspection results.
Most people associate inspections with what they did prior to buying a house or condo. They received a real property disclosure from the seller where the seller was supposed to answer a series of questions regarding the condition of the property, but it is of course in the seller’s best interest to answer the questions in a way to paint the property in as good a condition as possible. An independent inspection done by a licensed inspector is needed. An inspection is for the buyer’s benefit so the buyer almost always orders and pays for it. These types of inspections will check for plumbing and electrical issues, mold, wood rot, minor structural issues and a full spectrum of other issues. Based on what the inspector finds, a seller may be contractually required to make certain repairs or the buyer has the option to cancel the contract. Your specific real estate agent or real estate attorney will be able to examine the contract and explain your rights regarding the inspection.
Vacant Land Inspections
When inspecting vacant land, you are usually checking to see if the land is suitable for a particular use. If you are buying land to build a home, then you may check the size, the soil content, building restrictions or zoning to make sure that you can build your desired house. If it does not suit your needs, then you can cancel.
When purchasing a piece of property, “As is” the buyer still has the option to inspect the property, but cannot ask the seller to make any repairs or changes to the property. If the inspection shows termite damage or a faulty electrical circuit, two items sellers are commonly required to repair, then the buyer must decide to continue with the purchase and accept the issues or cancel the contract. Many people associate “as is” properties with foreclosures, but a typical seller can sell a property “as is” simply because he does not want to be required to make any repairs prior to closing.
What is the Point?
It is important to know what you are buying. You do not want to buy a house only to find it has issues that could have been discovered in an inspection. That could result in lawsuits between parties over what the seller should have disclosed. It is important to know exactly how your inspection contingency operates. If you have 14 days to inspect and cancel based on the inspection, finding out 18 days after the effective date that there is a problem might not help you cancel the contract and get your earnest money back. Now there are situations with latent defects that might override contractual timelines, but those are for another day.
Inspections are designed to benefit the buyer, but can ultimately save both parties to a deal from lawsuits down the road.
Please See Our Related Blog Posts:
Why Purchase Property under an LLC?
What is a Deed In Lieu of Foreclosure?