Reader question: “We are about to buy our first home, and I have some questions regarding the home inspection process and time frame. When does the home inspection usually take place? Does it happen before or after the purchase agreement is signed? And is there a way to back out if the inspector finds a serious problem?”
The home inspection usually takes place shortly after the seller accepts the buyer’s offer. Once the purchase agreement has been signed by both parties, the house goes into escrow. This is typically when the home inspection takes place, at least in a standard real estate transaction.
And yes, the buyers can back out of the deal if the inspector finds a serious issue. Many buyers include a home inspection contingency within their purchase offers, and for this very reason. It gives them a way to back out without losing their earnest money deposit (if they made one).
When the Home Inspection Takes Place
The outline below shows when the home inspection takes place, in relation to other steps in the buying process.
- The home buyer finds a suitable property and makes an offer to purchase it.
- The seller accepts the buyer’s offer, perhaps after some back-and-forth negotiations over the price, closing date, seller concessions, etc.
- The buyers provide a copy of the signed purchase agreement to their mortgage lender (if they are using a home loan purchase the property). If they’re not using a lender and paying cash, this step is moot.
- The buyers will then hire a home inspector to perform a thorough inspection of the property, with an emphasis on the roof, foundation, electrical system, heating and cooling, and plumbing.
- The inspector conducts the home inspection and reviews any issues or discrepancies with the buyers. He will also provide a detailed inspection report on paper.
- The buyers decide which items they want to have corrected, and which items they are okay with. They will send their repair requests the home owner/seller.
- The seller will agree to fix all, some, or none of the requested items. (They are under no obligation to repair any discrepancies noted by the inspector. This is where market leverage comes into the picture.)
- Home buyers usually have the opportunity to back out of the deal, if they are unwilling to accept any issues noted in the report. This is why it’s important to include a home inspection contingency within your purchase offer.
So that’s when the home inspection takes place during a regular real estate transaction. It happens when the house is “in escrow” — this is the period of time after the purchase agreement has been signed, and before the final closing date.
As a home buyer, it would be wise for you to have the home inspected sooner rather than later. That way, if the inspector uncovers serious issues you are not comfortable taking on, you can back out and move on to the next suitable property.
Foreclosures, Short Sales and Auctions
Everything mentioned in the previous section pertains to a standard real estate transaction, where the home buyer presents an offer to the homeowner. In such cases, the home inspection usually takes place shortly after the offer has been accepted by the seller. But there are other cases where the inspection might occur earlier, later, or not at all.
Distressed properties are a good example. If you are buying a foreclosure home that is owned by a bank (thus removing the homeowner from the picture entirely), you might not have an opportunity to inspect the property.
The same is true for homes that are sold at a real estate auction. When you bid on a property at an auction, you might not have an opportunity to inspect it beforehand. So the process varies depending on the type of home you are buying, and whom you are buying from.
If you’re planning to purchase a distressed property, I recommend working with a real estate agent who is familiar with the process. He or she can tell you when the home inspection takes place in this kind of scenario.