Inspection Contingencies and Timelines

In the movie Tommy Boy, Big Tom Callaghan makes a famous joke to a client when he says, “I can get a hell of a good look at a T-bone steak by sticking my head up a bull’s (you know where), but I’d rather take the butcher’s word for it.”

When it comes to homes, a potential buyer will want to stick their head everywhere possible and within the acceptable parameters of an Agreement of Sale. Most real estate agents, including this one, will recommend a potential buyer get a home inspection prior to moving into a home, but whether or not the home inspection is part of the transaction is a separate discussion.

Home inspections can be a major part of the buying process. During the immediate aftermath of the Covid shutdown, which affected many local real estate markets, buyers competed by offering well over asking price with many waived contingencies, aided by rates from low 4% to mid 5%. I was a buyer during that Wild West period as well. Had I missed on the home I eventually purchased, I may still be looking.

Those times have eased up considerably, and although home inspections are still a common negotiating tool, waiving them is not the knee-jerk reaction it once was, and in most transactions to date, they’re standard operating procedure. If the buyer plans on triggering the home inspection contingency in an offer, both buyers and sellers can benefit from knowing what that entails in the Pennsylvania Agreement of Sale.

Much like in previous posts on Mortgage Contingencies and Sale Contingencies, a Home Inspection Contingency follows a specific process if a buyer would like the agreement to be contingent on the results of specific inspections before moving forward. This means the buyer is doing their due diligence in making sure the property is as advertised. It also means the seller is held accountable for any issues not accounted for in a Seller’s Disclosure.

(Note: A Seller’s Disclosure, separate from an Agreement of Sale, is a legally required document in Pennsylvania that must be completed by a seller, highlighting any known issues /updates of the property for sale. It’s understood the buyer is viewing the property with these disclosed issues reflected in the sale price. This doesn’t necessarily mean the property is being sold “As Is” but means the seller is disclosing known facts about the property during the period of ownership. Sellers can be held liable for known undisclosed defects, even after an agreement of sale is executed, which is a separate issue from anything found through any number of inspections).

In an Agreement of Sale, a buyer has the option of electing or waiving a number of different inspections, with the most common being Home/Property and Environmental Hazards, Wood Infestation, Radon, Water Service and On-lot Sewage (if serviced by private systems). Other inspections may include Deeds, Restrictions, and Zoning, Property and Flood Insurance, Property Boundaries, and Lead-Based Paint Hazards (If the property is built prior to 1978, also separate from a Lead-Based Paint Disclosure).

During the time between acceptance and settlement, a seller must allow any representative, whether an inspector for a buyer, an insurance company, mortgage lender, or municipal official, to enter the property to complete this inspection. Parties and their agent may attend these inspections.

If any of the inspections are elected, what follows is a clear-cut process that could alter the execution or the terms of the transaction.

Inspection Period

If activating an inspection contingency, a buyer has a specific number of days (typically 10) to inspect the property through a certified home inspector. Following the results of the inspection, the buyer then has three options for action within that time frame:

 1)   Accept the property and proceed with the transaction.

2)    Present the reports to seller and terminate the agreement, with all deposit monies returned.

3)    Present the reports to seller along with a written reply for any corrections and/or credits as a result of the findings.

Negotiation Period and Response Period

After the 10-day inspection period ends, the buyer and seller enter into a 5-day negotiation period during which the seller can:

 1)   Agree to the proposal and satisfy all terms.

2)    Negotiate the terms of corrections and/or credits at settlement.

If the buyer and seller reach an agreement, the transaction continues with the new terms, however, if no agreement is reached or if the seller fails to respond to the buyer’s reply to inspections after an additional 2 days have passed, the buyer has the option to either accept the property or terminate the agreement.

If no agreement is reached, and the buyer fails to terminate via written notice before the 2-day period ends, the buyer will agree to all terms and accept the property.

On-lot Sewage

On-lot sewage inspections are a lot more involved, so if the buyer is requesting corrections to an on-lot sewage system, the seller has up to 25 days (or less if specified) to respond. In that response, the seller can include the name of the company, payment provisions, retests, and a completion date for the expected corrections. Within 5 days after receiving the seller’s proposal, or if no proposal is given, the buyer will be able to:

1)    Agree to terms and accept the property.

2)    Terminate the agreement.

3)    Accept the property and agree to the existing system, making all repairs and corrections at their own expense.

Both parties should be made aware that if the seller denies permission and/or access to the property to correct the defects, the buyer may within 5 days after the denial, terminate the agreement. If the buyer fails to respond to the seller’s proposal within 5 days, they will accept the property and proceed with the sale.

Contract Dates

Because an inspection contingency, as well as other parts of an agreement, relies on specific dates, both buyers and sellers need an accurate timeline from the execution of the contract to the settlement date to account for all these fluid pieces. Any time period for an agreement of sale begins on the first day following the acceptance date, including weekends and holidays. Contracts follow calendar days not business days. The only important date that cannot be a weekend or holiday is the final settlement date. For this reason, a clear timeline that includes all necessary dates makes for seamless communication from acceptance to execution.

As we enter into more balanced markets across the region, home inspection contingencies will play major role in most contracts for the foreseeable future. Both buyers and sellers can benefit from understanding the timelines to avoid any disruptions in the process. Like little Tom Callaghan at the end of the aforementioned movie, they don’t want to be stuck on a dingy in the middle of a lake praying for wind.