 Personal finance practice problem presentation importance of home inspection contingency. Get ready to get financially fit practicing personal finance. Remember that when making financial decisions we can basically break them out into the short-term and long-term decisions. The short-term decisions the ones where we train our gut to trust our gut using tinkering trial and air honing down our habits so we can make better decisions by habit and the long-term decisions the ones that we as human beings aren't as good at given the fact that they're gonna have an impact on multiple periods into the future where we have to use the adage of measure twice cut once. We want to put a more formal process into the decision and we might go through these steps in the purchasing process. Number one determine the home ownership need. Number two find and evaluate a property to purchase. Number three price the property. Number four obtain financing. Number five close the purchase transaction. We're gonna be considering that now the importance of the home inspection contingency. Most of this information can be found at Investopedia which you could find online looking up your references and resources and continuing your research from there. This is by Amy Fontinier updated a January 29th, 2022. Importance of home inspection contingency. Before you buy a home one of the things you should do is to have it checked out by a professional home inspector. Yes we can hear your objective quote buying a home is expensive enough as it is. Why would I choose to fork over hundreds more if I'm not required to. In other words why would I want to have another inspector a professional inspector doing an inspection if it's not a required part of the home purchase and this article will delve into what home inspection that can reveal and whether it's worth hiring an inspector as a home buyer. So you do you need that added cost of the professional what kind of added security might they offer the home inspection contingency continued home inspections provide an opportunity for a buyer to identify any major issues with a home before closing that's of course going to be the process or the point and noting we have the long term decision process so if we can add that added level of security it might be worthwhile to do so. So your first clue that a home inspection is important is that it can be used as a contingency in your contract with the seller so you can put it as part of the contractual agreement. This contingency provides that if a home inspection reveals significant defects you can back out of your purchase offer free of penalty within a specific timeframe. So just having that offer in place could you know could make you feeling more secure just in that instance as well and give you that option and that double check from a professional to take a look at it. The potential problems a home can have must be pretty serious if they could allow you to walk away from such a significant contract. So in other words if you're ready to go you're ready to close the deal on this thing there's got to be a pretty significant change to change your mind over something that that is going to be a large dollar amount and a long term type of investment in some situation realtors are also known to include home inspection clauses in contracts such as those for newly built residents and new home construction inspections generally cover foundations checking before the concrete is poured once poured there's very little that can can be corrected. So you want to make sure that you get that right before the concrete is going in there dry free drywall checking the structure and mechanics before the drywall wall is laid. So clearly another kind of thing that once it's once it's done it's hard to undo so you want to make sure it's done right the first time. Full inspection a full walkthrough is performed of the completed home. What a home inspection covers inspectors very inexperienced so clearly when you're doing home inspection you would want to make sure you're picking someone up who is experienced within the process they vary with experience ability thoroughness but a good inspector should examine certain home components and then produce a report covering their findings. Obviously they're going to go in they're going to check certain things out common types of things they could have problems they're going to do a report on what they find with regards to them. The typical inspection last two to three hours and you should be present for the inspection to get a firsthand explanation of the inspector's findings and if necessary ask questions. So you want to kind of be there you want to know what they what they think about the areas and then that's where your chance might be to expand on those so you can provide yourself more comfort given the fact that you're talking about a large investment and about things that you of course do not have as much of experience from a general purchasing standpoint as someone that might be going through these types of inspections often so why are you checking in this point and think what's the typical problem that might be there why do you think it doesn't have the problem and so on and so forth. Also any problems the inspector on covers will make more sense if you see them in person instead of relying solely on the snapshot photos in the report. So if they give you a report and they're like yeah this is a little bit of an issue here or there it's hard to know how big of an issue it is and you might not have as much experience determining if it's a deal breaker type of issue. So it'd be nice to be able to see it and then communicate with the inspector about it. The inspector should note whether each problem is a safety issue major defect or minor defect so they could put it on the chart of major minor and so on and what the category is of it but clearly you might want more information than just that which items need replacement and which should be repaired or serviced items that are suitable for now but that should be closely monitored and an excellent inspector will even tell you about routine maintenance that should be performed which can be a great help if you are a first-time home buyer. While it isn't possible to list everything an inspector could check for the following home inspection checklists for buyers should give you a general idea of what to expect. So we got the exterior inspection just a few things that might be on the list that they're going to be looking through that you want on the radar. So the inspector will complete a full inspection of the outside of the structure. This will include climbing into any crawl spaces under the home and using a ladder to reach and inspect the roof and other items. Exterior walls the inspector will check for damage or missing sightings cracks and whether the soil is in excessively close contact with the bottom of the house which can invite wood destroying insects. So that's again something that you know you want to be able to ask them about that it'd be nice to be able to get some expansion about that how big of a concern are these types of things that they were they were going to come back with some of them. However the pest inspector yes you might want to engage one of those two not the home inspector will check for actual damage from termites etc. So you got the other pest kind of control kind of some overlap between these two professionals. The inspector will let you know which problems are cosmetic and which would be more serious. So how much is it going to cause to kind of fix this thing is that a cosmetic type of thing. Is it a more serious type of thing that you would think would cause more problems down the line or possibly be more costly to fix foundation. If the foundation is not visible and it usually is not the inspector will not be able to examine it directly. Still they can check the secondary evidence of foundation issues like cracks and settling grading. The inspector will the inspector will let you know whether the grading slopes away from the house as it should. If it doesn't water could get into the house and cause damage and you will need to either change the slope of the yard or install a drainage system. So clearly you don't want your your home to be like in the pit of the area because then of course if it rains then it's more likely that the water will go that way. So garage or carpet or carport. The inspector will test the garage door for proper opening and closing. Check the garage framing if it is visible and determine if it is properly ventilated to prevent accidental carbon monoxide poisoning. So if the water heater is in the garage the inspector will make sure it is installed high enough off the ground to minimize the risk of explosion from gasoline fumes mingling with the heater's flame. So roof the inspector will check for areas where roof damage or poor installation could allow water to enter the home such as loose missing or improperly secured shingles and cracked or damaged mastic around vents. They will also check the condition of the gutters interior inspection. The inspector will also complete a thorough inspection of the interior of the home. They will inspect everything from the ceiling to the cabinets under the sink. The plumbing is an important component that the home inspector will check all faucets and showers look for visible leaks and test the water pressure. They will also identify the kind of pipes the house has if any pipes are visible. So if you want to know how old the pipes are what kind of pipes are there how likely is it you're going to have to replace those how long will they last. The inspector may recommend a secondary inspection of the pipes are old to determine if or when they might need to be replaced and how much the work would cost. The inspector will also identify the location of the home's main water shutoff valve electron electrical. The inspector will identify the kind of wiring home has test all the outlets and make sure there are functional ground fault circuit and inter interrupters which can protect you from electric electrocution electric shock and electric burns installed in areas like the bathroom kitchen garage outdoors. They will also check for electric electrical panel for any safety issues in check your electronic outlets to ensure they do not present fire hazard heating ventilation and air conditioning HVAC HVAC the inspector will also look at your HVAC system to estimate the age of the furnace and air conditioner determine if they function properly and recommend repairs or maintenance and inspector can also give you an idea of the age of the home's ducting whether it might might have leaks if your home has sufficient insulation to minimize your energy bills and whether there is any asbestos insulation. Water heater the home inspector will identify the age of the heater and determine if it is properly installed and secured. The inspector will also let you know what kind of condition it is and give you a general idea of how many years it has left. We've got the kitchen appliances the inspector will sometimes check kitchen appliances they come from the home to make sure they work but these are not always part of the inspection so those aren't actually like physically part of the home oftentimes but you know clearly they could they could be a significant component you know factor or part of the purchase price so if you think you'll want to keep them be sure to ask which ones are omitted so you can test them yourself you got the laundry room the inspector will make sure the laundry room is properly vented a poorly maintained dryer exhaust system can be a serious fire hazard we've got the fire safety if the home has an attached garage the inspector will make sure the wall has the proper fire rating and hasn't been damaged in any way that would compromise its fire rating they will also test the home's smoke detectors the bathrooms the inspectors will check the visible leaks properly secured toilets adequate ventilation and other issues if the bathroom does not have a window or a ventilation fan mold and mildew can become problems and moisture can warp wood carbonate and over time not covered in a home inspection so what's not covered a home inspection can't identify everything that might be wrong with the property so clearly they're not going to cover everything or they're not going to give a complete guarantee that the thing is has is completely free of any problems it is only checks for visual cues to problems for example if the home's doors do not close properly or the floors are slanted the foundation might have a crack but if the crack can't be seen without pulling up all the flooring in the house a home inspector can't tell you for sure if it's there so that's might why you might want to be there and question them further because they might be saying something like well this is what I see this is what it might lead to but of course I can't say that for sure because I can't see the actual foundation this is just one thing that could be leading or that could be one cause of this particular thing that I do see so some area inspectors won't look at include inside walls won't cup and cut open drywall or insulation so they're not gonna generally actually cut open the wall and see what kind of insulation is there and give you that that in depth calculation or insight inside pipes or water sewer line so they're not actually going in to the pipes so they're gonna get they might give you some indication on how old the pipes are maybe or something like that but possibly not going right inside then inside the chimneys behind electrical panels furthermore most home inspectors are generalists that is they can tell you what the plumbing might have a problem but then will recommend that you hire an expert to verify the issue and give you an estimate of the cost to fix it so clearly we're talking about a whole lot of things in the home no one individual is an expert on all those things because all those things kind of require specialists to be experts in them so the inspector themselves you would think has to be a generalist they can give you a general idea if there is a problem with a particular thing you would think you might have to go to the expert in a similar way as if you go into a general doctor and you've got some problem with your toe you've got to go to the toe doctor whoever the whatever they call the toe doctor so in any case of course hiring additional inspectors will cost extra money so home home inspectors also do not specify specifically check for termite damage site condiment site contamination mold asbestos engineering problems and other specialized problems so if they if they have reason to suspect though they'll likely give you a heads up so they'll probably say how this could be this kind of more specialized type of issue then they might recommend someone else to go further into it so some inspectors offer radon testing as an add-on some will recommend asbestos testing services if your home appears to be at risk so they might be able to determine if it's more at risk for example by the year it was it was built in the track housing that it's in the you know in the common practices of that area might lead the inspector to make some assumptions about certain things possibly however problems without visual cues pests radon lead may crop up after the inspection after the inspection once you have the results of your home inspection you have several options if the problems are too significant or too expensive to fix you can choose to walk away from the purchase as long as the purchase contract has an inspection contingency so that's the point of the inspection if you're saying oh the foundation is cracked or something well that's kind of a problem that you would think that would be a big issue to fix and then you might you know be able to remove yourself from the contract in that instance for problems large or small you can ask the seller to fix them reduce the purchase price or give you a cash credit at the close to fix the problems yourself so now as you're still in the process before this thing is closed what can you do about them well you could go to the seller and say I would like you to fix this before the thing is over or you can say well I would like you to reduce the purchase price given the fact that there is this problem that I'm gonna have to deal with that I didn't know about before the inspection or they can give you the cash credit at closing in that instance so those are instances where you might be able to negotiate because you're still kind of getting back to the negotiation because this thing hasn't yet closed so this is where the home inspection can pay for itself several times over if these operations aren't viable to your situation for example if the property is bank owned or being sold as is you can get estimates to fix the problems yourself and come up with a plan for repairs in order for other important and affordable once you own the property so if you can't if you can't have any recourse with the seller change the contract for whatever reason or they're not buying that or they don't want to change it then the question is well do you want to go through with the contract at that point and how much will it cost to do so to deal with these added issues that you didn't know before the inspection so worth the investment question the cost to hire a home inspector varies greatly depending on the size of the home and the region the range is roughly 300 to $500 of course that can go much higher if the general inspections findings lead to more specialized inspectors being called in ask ahead of time how an inspector charges it's important to put things in perspective remember that an inspection is not the sole determination for buying a house maybe you're willing to make some renovations to the house with these problems the inspection will help you determine exactly how many you'll need to do never free and clear of problems so an inspection will always find a problem with a home that's the I mean if the inspector goes in there they kind of feel obligated to find some problem right that's what that's what reviewers do and whatnot so even new construction will have minor issues that need to be addressed not a not about getting all the fixes done no seller is going to fix everything for you so you can't go into the inspection and say well look the inspector came up with these things therefore these have to be done before the before the deal is closed now it's still a negotiation process so you're gonna have to think you know you're gonna have to negotiate still so they may negotiate on some of them but the expecting to resolve all issues is unreasonable