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Do you want a home inspection contingency?

You find a home that you'd like to buy. You walk through it and you love it. You think it's the type of place you could live for the rest of your life.

Best of all, you have loan approval for a mortgage that will cover the cost of the home. It's time to make an offer. Then your agent asks you if you want to put in a home inspection contingency.

What does it do?

Let's start by quickly breaking down what the contingency does. Essentially, it says that your offer only stands if the house passes the inspection. If it does not, then you reserve the right to pull your offer from the table. There are no negative ramifications. You don't lose anything and the seller can't take legal action against you.

Why is it helpful?

We'll look at both sides of this, but let's start with why it's helpful. Think of it like a safety net. If you find some huge problem with the house after making your offer, you don't have to go through with the purchase.

At that point, you'd have three choices. You could either pull your offer entirely, or you could simply tell the seller that you want to make a lower offer. That will leave you with enough money to make the repairs. Your third option is to tell the seller to make the repairs, after which the original offer stands.

Why would you not use it?

Looking at it from that perspective, it feels like you definitely want the contingency. As great as the home looked when you walked through, you're not a home inspector. You don't know if they painted over fire damage or if there are leaks in the roof or cracks in the foundation.

From a strict standpoint of protecting your investment, yes, you want to use the contingency. However, the benefit of waiving it is that you may get a lower purchase price or you may get the home instead of someone else.

If you and another buyer offer the same amount, but you do it without the contingency, the seller knows they can lock in the price. That's attractive to them, with or without home defects. Some sellers even accept much less than market value when they don't have to deal with it. If that happens, it leaves you with money to fix the problems if you find them -- and extra money if you don't.

Your options

The key to buying a home lies in understanding all of the options you have. It's not just about loving the house. Make sure you know exactly what steps to take.

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