Home Inspection Contingency — Protect Your Deposit and Walk Away Clean
What Is It?
A home inspection contingency is a clause in your purchase contract that gives you the right to have the property professionally inspected and, if you are not satisfied with the results, to cancel the contract and recover your earnest money deposit in full.
Without a properly written contingency, you can lose your deposit if you back out — even for serious defects discovered after the contract is signed. A well-drafted inspection contingency is one of the most valuable protections a buyer has.
What a Strong Inspection Contingency Includes
Not all inspection contingencies are equal. A strong one should contain:
- A defined inspection period — typically 7–14 days from contract execution (negotiate for more time in complex transactions)
- A clear cancellation right — you can cancel for any reason (not just “material defects”) during the inspection period
- An earnest money recovery clause — your deposit is fully refundable if you cancel within the period
- A repair request deadline — a specific date by which you must submit your requests in writing
- A seller response deadline — the seller has a set number of days to accept, reject, or counter your requests
- A final walkthrough right — the right to verify agreed repairs before closing
Some states use standardized forms (e.g., California’s CAR residential purchase agreement) that include most of these by default. In states with less standardized forms, review the contingency language carefully.
How To Use It
Step 1 — Hire a licensed, independent inspector. Use your own inspector — not one recommended by the seller’s agent. Look for ASHI (American Society of Home Inspectors) or InterNACHI members. A standard inspection covers the structure, roof, foundation, HVAC, plumbing, and electrical systems.
Step 2 — Attend the inspection. Walk through with the inspector. Ask questions. Issues explained in person are clearer than written reports. Take your own photos.
Step 3 — Get specialist inspections if warranted. A general inspector will flag concerns but won’t always diagnose them fully. Separately hire:
- A structural engineer if the foundation or framing shows cracks or settling
- A mold inspector if moisture or mildew is present
- A sewer scope professional (typically $150–$300) — old pipes are one of the most expensive hidden problems
- A radon test (especially in the Midwest and Northeast) — elevated radon requires a mitigation system (~$800–$2,500)
Step 4 — Submit a written inspection objection before the deadline. List the items you want addressed. Be specific — cite the inspector’s report section numbers, describe the defect, and state what you are requesting (repair, credit, or price reduction).
Step 5 — Negotiate. Sellers can agree, refuse, or counter. You then have the option to accept the response, counter again, or cancel the contract and receive your earnest money back.
Step 6 — Cancel if necessary. If the seller won’t address serious issues and you choose to walk away, do so in writing before the inspection period expires. Your deposit must be released back to you per the contingency terms.
Repairs vs. Price Reductions vs. Credits
Each approach has tradeoffs:
- Repairs: You know the issue will be fixed, but you can’t always verify quality. Require a licensed contractor to do the work and provide receipts.
- Price reduction: Lowers your mortgage balance permanently. Good for issues you plan to fix yourself or for which the repair cost is uncertain.
- Closing cost credit: The seller gives you money at closing to cover repair costs. You keep your original loan amount. This is often the cleanest option for mid-size issues.
What Most People Don’t Know
- Waiving inspection in a hot market is very risky. Some buyers skip the contingency to make their offer more attractive. If serious problems surface after closing, they have no recourse against the seller and no way to recover their deposit.
- An “as-is” sale does not waive your right to inspect. Even in an “as-is” transaction, you can — and should — still conduct an inspection. “As-is” means the seller won’t make repairs; it does not mean you can’t walk away if the inspection reveals problems you can’t accept.
- The contingency deadline is strict. If you miss the deadline, the contingency expires and you may lose your deposit if you then try to cancel. Calendar the deadline the moment the contract is signed.
- Cosmetic issues are not grounds for cancellation in some contracts. Know what your contingency covers — some require “material defects” to trigger the right to cancel, while others allow cancellation for any reason.
Frequently Asked Questions
Can the seller keep my earnest money if I cancel during the inspection period?
Not if the contingency is properly drafted. A clean inspection contingency gives you the right to cancel for any reason during the inspection period and receive a full refund of the earnest money. Read your contract carefully — some contingencies require a “material defect” finding, which is a higher bar.
What if the seller discloses known defects before I make an offer? Can I still negotiate?
Yes. Pre-disclosed defects can still be negotiated after inspection. The inspection may reveal that a disclosed problem is more serious than described, or uncover additional issues the seller didn’t mention. Disclosure does not waive your right to negotiate.
How much should I ask for in repairs or credits?
Focus on safety issues (electrical, gas, structural), major systems (HVAC, roof, plumbing), and anything that will cost more than a few thousand dollars to fix. Cosmetic items, minor maintenance, and things visible before offer are typically not worth fighting over. Prioritize: ask for the most important 3–5 items rather than a list of 30.
My inspection period already expired, but I just got the sewer scope results back showing $15,000 in damage. What can I do?
This is a difficult situation. If the sewer scope was explicitly scheduled within the inspection period but the report was delayed, you may have grounds to argue the contingency should still apply. Otherwise, you are generally past the deadline and would lose your deposit if you cancel. This is why scheduling all specialty inspections within the contingency window is critical.
What is an “information only” inspection vs. a contingency inspection?
Some buyers conduct an inspection “for information only” — meaning they waive the contingency but still inspect so they know what they’re buying. This gives them no contractual recourse but at least prepares them for future repair costs. It is better than no inspection at all but provides no financial protection.