The Pros and Cons of Home ‘Inspection Protection’ Plans

Jerome Powell

To gain an upper hand in today’s competitive housing market, homebuyers have been waiving their home inspections — or at least their right to back out of a deal because of an inspector’s findings. Though this practice, known as waiving your inspection contingency, can help you win a bidding war, it comes with some serious risks.

Now, home insurance company Hippo is offering a new pseudo-insurance product that may give buyers the best of both worlds: a contingency-free offer and less risk — at least slightly.

Known as Inspection Protection, the product lets buyers waive the contingency, get the home inspected and add a layer of protection against some of the more costly issues that might crop up down the line.

Sellers can also add the coverage and pass it on to buyers. According to the company, homebuyers in a pilot program were four times more likely to waive the inspection contingency when sellers bought this coverage.

“What we’ve seen and heard from our customer base is that nearly half of homebuyers experience an unexpected repair during the first year of homeownership,” says Daniel Blanaru, chief growth officer at Hippo.

That’s just what the protection covers — repairs within the first year of closing. But be warned: The protection doesn’t cover everything — nor will it offset the risk of waiving your inspection entirely. Buyers considering an inspection waiver could still be responsible for many repairs and expenses, so it’s important to have the full picture before making such a move.

Why are homebuyers waiving inspection contingencies?

This year has been tough for homebuyers. For-sale housing has hovered near record lows, above-asking offers have been the norm, and nearly two-thirds of buyers faced a bidding war in June alone.

In this competitive atmosphere, many are waiving contingencies — particularly the inspection contingency — to stand out from the pack. Removing contingencies reduces the risk that a buyer will back out, making the offer more attractive to sellers. All in all, 25% of buyers waived their inspection contingency in May, according to the National Association of Realtors.

Still, even with a waiver, most sellers are willing to let buyers arrange a home inspection for informational purposes. They just don’t want the sale hanging in the balance if the inspector finds an issue.

“Most sellers will agree to have home inspections done despite a buyer waiving the inspection contingency, as long as the buyers don’t have a backdoor to get out of the contract,” says Vickey Barron, a real estate broker with Compass in New York. “It would be a big red flag if a seller didn’t agree to a home inspection because it indicates there could be something to hide.”

This is important, because buyers will still need an inspection — and one through a Hippo-approved provider — to purchase Inspection Protection coverage.

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