It’s common knowledge that real estate markets across the country are beyond hot. It’s become commonplace to not hope for but to expect multiple offer situations. Buyers are routinely competing with other buyers who are just as qualified and motivated. In addition to offering tens and in some cases hundreds of thousands over list price, buyers are increasingly looking to terms as a way to make their offer stand out from the pile of offers sellers are receiving. Quick closings, appraisal guarantees and waiver of home inspection contingencies are becoming customary terms in buyers’ offers to purchase property.
When a buyer finds themselves competing, often the case in the current real estate climate, it can be tempting to waive the inspection contingency. This comes with sizable risk and essentially waives a buyer’s right to revoke their offer to purchase, and forfeits the return of the earnest money deposit. A home inspection contingency protects the buyer’s financial interest in what is typically the largest purchase of their life.
A professional home inspection is the in-depth examination of the property’s systems and structures that are not readily apparent in a typical property viewing. These inspections also examine the property for health and safety issues, such as faulty electrical wiring, structural deficiencies, potential fire hazards and much more.
Take, for example, a buyer who is looking for a property that is turnkey and will not require sizable repairs before moving in. The buyer settles on a darling little cottage that has new flooring and fresh paint. What the buyer doesn’t see is the crumbling foundation in the crawlspace or the failed heating mechanism with the heating and cooling system. These are potentially very costly repairs that a buyer who has waived the home inspection contingency is saddled with, and with no opportunity to back out of the purchase agreement without losing a substantial earnest money deposit.
More often than not, a seller is not even aware of the deficiencies or issues. I had a transaction some time ago where the seller did not disclose that the furnace system was on the verge of complete failure. The seller has just assumed that when the thermostat kicked into emergency mode, it still was in full working order because it was providing heat. The home inspection revealed that this system was in fact failing and would be a $5,000 expense to the buyer to repair. In addition to the furnace, the inspection revealed that nearly three quarters of all of the windows in the home had failed seals and damaged housings that required replacement. Again, another repair costing several thousand dollars.
While the waiver of the inspection contingency is advantageous to a seller, it truly can be a detriment to a buyer. The vast majority of real estate professionals will caution a buyer on the hazards of waiving the inspection contingency. So, what is an approach to crafting an offer that is attractive to a seller, but still protects a buyer? One tactic that I have consulted with my clients about is to keep the home inspection contingency and waive any requests for repairs or credits for repairs in the initial offer—essentially relaying to the seller that this is an information-only inspection. This approach gives the seller peace of mind that they are off the hook for making any repairs and the financial hook to pay for them. In addition, this allows the buyer the opportunity to really know what they are buying and make the educated decision to accept what may arise from the inspection. Essentially, a home inspection allows a buyer to purchase the property with their eyes wide open when buying what is likely the biggest financial asset of their lives.