Section J-1 of the Purchase Contract is one of the most important contingencies in a residential real estate transaction. Section J-1 is known as "the home inspection contingency." The home inspection process can be stressful because this is when the Buyer gets to inspect the property. Are their plumbing issues? Are there any double tap breakers? What about the roof?
After you conduct your home inspection, you have five main options...
(1) Proceed with the transaction. By proceeding with the transaction, you waive/clear the home inspection contingency. Most times, your second cash deposit is due after you waive/clear the home inspection contingency.
(2) Cancel for a full refund. Say you have 12 days, from acceptance, to inspect the property. In order to get a full refund on your cash deposit(s), you will have to cancel within the 12 days.
(3) Ask for a buyer credit. This credit will be applied to your closing costs. Both Seller and Buyer have to mutually agree to a buyer credit. In previous transaction, most clients ask for a credit since the amount is only a few hundred dollars.
(4) Ask for a price reduction. If there is a major repair, some Buyers will ask for a price reduction (as opposed to a credit). For example, lets say your home inspector discovers the house needs a new roof. You bring in a roofing vendor and the vendor gives you a quote of $25,000. Generally speaking, most buyers would ask for a price reduction since they might not have $25,000 in closing costs. Keep in mind that both Seller and Buyer have to mutually agree to a price reduction.
(5) Ask for a credit and a price reduction. For example, say your home inspector discovered a lot of major problems with the home. You want to reduce your cost by $20,000. You could ask for a $10,000 price reduction and a $10,000 credit. The credit could help you buy a mortgage point on your loan.
-RO