San Francisco Real Estate Contracts: Meet the Inspection Contingency

Disclaimer: Real Estate transactions are governed by a contract. I am not an attorney, nor am I qualified or attempting to give legal advice. This blog post looks at one specific contract (published by the SFAR) and I discuss how the property inspection contingency generally works in San Francisco real estate transactions. This post is not intended to be nor is it a substitute for legal advice, and if you are currently in a deal, there may be specific circumstances, documents or agreements that modify the operation of this contingency. Do not operate heavy machinery while under the influence of drugs or alcohol. Brush your teeth and floss daily.

Buyers in a San Francisco real estate deal may have several contingencies (opportunities to exit the transaction with no fault and a full return of any deposits paid). The inspections that are most common are:

  • Property Inspection Contingency
  • Structural Pest Inspection Contingency
  • Financing Contingency
  • Appraisal Contingency
Paragraph 12A of the San Francisco Purchase Contract

The property inspection contingency covers your right to inspect the house and anything and everything about it. That would include things like the neighbors, the neighborhood, parking, street light at night, noise, roof, condition and type of soil, foundation, and the list goes on and on and on…

Generally, in San Francisco, buyers begin with a general contractor’s inspection. An inspector (who may or may not be a licensed contractor) walks through the property with you and gives you a good overview of the general condition of the systems and structures. These would include things like the heating system, electrical, plumbing, roof, foundation, framing, fireplaces. In addition to giving you a current snapshot of the home, most written reports generally include suggestions for on-going maintenance so that you can get the most out of your systems and structures and maintain them in good condition for as long as possible. If the general inspection raises red flags, it can make sense to engage additional specialized inspectors.

The cost of a general contractor’s property inspection is roughly $500, the amount can vary based on the company doing the inspection and the size of the property. Specialized property inspections are generally more expensive, which is why starting with a less expensive general overview often makes the most financial sense.

While it is not required, I strongly recommend to all of my buyers that they attend the inspection. While a written report will be given to the buyer for their reference, there is no substitute for walking through the property and being able to ask questions as they arise and as you notice things.

In San Francisco, property inspections for purchases that were written on the San Francisco purchase contract (the vast majority, it is the contract that a good San Francisco agent will use since it is tailored to the quirks of San Francisco real estate sales) are governed by paragraph 12A of the document.

The agreement defaults to a time period of 15 days for the buyer to complete all property inspections and remove their contingency in writing. I have worked with property inspection contingencies that are as short as 3 days, with an average timeframe being between 7 and 10 days.

If you aren’t comfortable with what you discover during the property inspection period you have several options. You could ask for repairs or remediation of issues encountered, for a credit towards closing costs, for an adjustment in sales price, or you could also choose to terminate the contract. When terminating the contract, you do not have to give a specific reason for termination (although it is polite and customary), nor do you have to give the seller the opportunity to repair items of concern prior to cancellation.

If all goes well and you are comfortable with the condition of your home after property inspections, you will remove – “lift” is the common lingo – the contingency in writing.

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