In a hot market, it can be difficult to compete with multiple buyers, especially if you’re competing against all-cash buyers. One strategy homebuyers can use to improve their chances is to waive certain contingencies in the contract.
One example is the home inspection contingency. It might seem like an acceptable risk, but it can end up being a costly mistake. While the home may look fine on the surface, there may be hidden issues that could turn your investment into a financial black hole.
Before you consider waiving a home inspection, the homebuying experts at NAEBA encourage you to educate yourself about the home inspection process so you understand why this decision should not be taken lightly.
What is a home inspection?
A home inspection is usually performed by a licensed home inspector. These people will assess every part of the property and work to leave no rock unturned.
They will examine the HVAC, plumbing, electrical, building structure and anything else that could affect the livability of the home. While anyone can be expected to notice a cracked ceiling, it takes a trained home inspector to spot less conspicuous problems such as a cracked heat exchanger in the furnace or termite damage.
Home inspectors don’t just look at currently needed repairs. They also look for things that can become a problem later down the road. The wooden flooring might be fine now, but if it will need replacing in a year or two, that could be a huge financial burden in the blink of an eye, and an easy way to negotiate a lower deal right now.
What is a home inspection contingency?
A standard real estate contract will include a home inspection contingency. This allows the buyer a small timeframe to have the property inspected for damages.
Should any damages be found, the contingency allows the buyer to back out of the deal without any legal consequences. Most potential buyers use this as an opportunity to renegotiate for a reduced offer price or ask that repairs be done before the deal can close. In the end, both sides are free to walk away if an agreement cannot be reached.
Waiving a home inspection is essentially waiving your rights to negotiate with the seller on damage repair, as you would not be aware of items needing repair.
Why would anyone want to waive a home inspection contingency?
In a hot seller’s market, a seller usually has multiple offers to choose from. But the best offers aren’t always the ones with the higher price.
A potential buyer can really boost the appeal of their offer by dropping certain contingencies such as the home inspection. From a seller’s perspective, no home inspection contingency means one less step in the sales process and a lot less anxiety about any problems potentially tanking the deal or causing a renegotiation.
There could be two offers they’re considering, both relatively equal, but one does not include a home inspection contingency. The one with no home inspection is far more appealing as it removes a lot of unknowns in the deal and essentially allows them to sell the property as is.
For desperate buyers who have lost out to stronger offers, dropping the home inspection contingency could start to look like an easy way to get a leg over the competition.
Why is it a bad idea to waive the home inspection?
A buyer who drops this contingency is getting into a much riskier deal. Without the home inspection, you lose your right to back out of the deal or renegotiate if huge problems are found. You’re locked into the deal and could be facing repair expenses that can run into the tens or even hundreds of thousands of dollars.
As such, waiving the home inspection contingency would not be advised, unless you’re willing to accept the financial risks of buying a property as is.
There are better ways of improving your offer, such as a larger down payment or getting preapproved for your mortgage ahead of time.
If you still feel that dropping the inspection contingency is the only way to win a seller over, try to secure a general inspection contingency. One which gives you the right to void the contract but not ask for repairs.
View the list of NAEBA exclusive buyer agents in your area today. Our experts can walk you through the contingency process and will help you fully understand the importance of home inspections.