Last updated on February 3rd, 2024 at 07:19 am
One of the most important contingencies when submitting an offer for a home is the home inspection contingency.
This particular clause allows buyers to request a professional inspection of the property and withdraw from the contract in case any significant issues are discovered.
However, in competitive markets where bidding wars are common, some house buyers might contemplate waiving this contingency to make their offer more appealing.
Nonetheless, is it a smart or perilous decision?
We will provide an in-depth analysis of both sides of waiving inspection contingencies.
We will explore what it means to waive this contingency, the advantages and disadvantages of doing so, and alternative strategies that can help you feel confident while still remaining competitive in a heated market.
Should I waive the inspection contingency
In the United States, waiving the inspection contingency is becoming increasingly common, with nearly 40% of homebuyers opting to waive this contingency in 2019.
Whether to waive inspection contingency depends on the situation.
In a competitive market, it may make your offer more attractive, but it is risky if there are unknown issues with the property.
Your offer may more likely be accepted if you waive your rights. House buyers who submit a contract with long inspection periods, are more likely to have their offers rejected.
Your mortgage lender will still require an appraisal if you are getting a loan.
Consult a real estate professional or attorney or even a home inspector before making this decision.
What is a home inspection contingency
A home inspection contingency is a provision in a real estate agreement that permits the buyer to withdraw from the deal if major problems arise during the examination.
The clause usually includes deadlines for inspecting and requesting repairs or altering the contract’s conditions.
Under normal conditions, buyers get due diligence which includes checking out the condition of the house.
Waiving an inspection contingency means that the buyer is agreeing to purchase the property without having a professional inspector come in and check the condition of the home.
Waiving this contingency can be risky since it exposes buyers to unanticipated property concerns, so they should weigh their choices carefully and seek advice from their agent or attorney before proceeding.
Pros of waiving the right to inspect
If you’re buying in a hot real estate market and trying to stand out from other buyers with multiple offers, waiving inspection contingencies may be a bargaining chip that gives you leverage.
You may even be able to negotiate a lower asking price or get necessary repairs taken care of before closing.
Waiving inspection contingency can speed up the homebuying process as well by removing the need for documentation or an informational inspection.
Remember that waiving it is only advisable if you have extensive knowledge of potential problems or defects with the property.
How much does an inspection cost
The cost of a home inspection varies depending on several factors, such as location, property size, and scope of the inspection.
On average, a standard home inspection can cost between $300 to $500.
However, additional inspections for pests, radon, or mold may cost extra.
It’s important to factor in these costs when budgeting for your home purchase and to ensure that you’re hiring a qualified inspector who will provide a thorough assessment of the property.
Homebuyers have time to inspect
Homebuyers have time to inspect a property and should take advantage of the inspection contingency clause while buying a new home.
Inspecting a property thoroughly can potentially save you thousands of dollars in unexpected repairs and give you peace of mind.
The process can also provide leverage for bargaining chips with the seller’s asking price and help identify potential problems that could lead to serious issues down the line.
Consultation with a certified inspector or professional is recommended as they can help identify safety hazards and structural issues that may not be apparent to prospective homebuyers.
That is the whole reason to have an inspection in the first place.
Waiving an inspection contingency may speed up the process and make your offer more attractive to sellers in a hot real estate market but doing so without proper documentation and good faith negotiations could lead to necessary repairs that leave buyers footing repair costs post-closing.
Imagine you find something wrong with the home after closing. What if you found termites or a leaky roof. You might have wished you weren’t so quick to make a decision.
This is what having a good real estate agent or broker can do for you.
Waiving can help in a hot market
According to a survey by the National Association of Realtors, waiving the inspection contingency is more common among first-time homebuyers (42%) than repeat homebuyers (36%).
In 2019, the percentage of homebuyers who waived the inspection contingency was highest in the West (44%) and lowest in the Midwest (35%).
In a seller’s market, leverage is key. One way to attain this leverage is by waiving inspection contingencies.
It’s a smart move especially if the home is in good condition or if you’re willing to take on necessary repairs.
But it is a gamble.
The decision could ease the home buying process while potentially saving money on inspection costs.
Nevertheless, it’s important to remember that waiving inspection contingencies also entails taking on all potential issues with the property, which could end up being costly in the future if significant issues such as structural defects or safety hazards emerge.
Contingencies can make you poorer
Making the decision to forego these when purchasing a property requires thoughtful consideration of its pros and cons.
While this move can heighten your chances of acquiring the desired property in a competitive market and hasten the home buying process, it also involves forfeiting your leverage for negotiating repairs or rescinding the sale if significant problems arise.
This may lead to unexpected expenses on repairs that could run into thousands of dollars.
- For example, what if you found out after you purchased the house that there were thousands of dollars in foundation work the home needed.
- Or what if the home’s air conditioning units weren’t operating properly and needed to be replaced.
- According to this source, they can cost as much as $7,000, or more
Therefore, before determining whether to waive contingencies in a home purchase, it is vital to assess your financial state and risk appetite prudently.
Cons of Waiving
While waiving this contingency may seem advantageous in certain situations, it comes with its own set of risks.
Unseen issues: By waiving the home inspection contingency, you are essentially accepting the property “as is” without the opportunity to discover any hidden problems.
Even though a house may seem perfect at first glance, there could be underlying issues that only a professional inspector can identify.
These issues may include faulty wiring, plumbing problems, structural damage, or other major issues that could be costly to repair.
Financial risk: Without a home inspection contingency, you assume the risk of uncovering significant problems after the purchase.
These unforeseen issues could lead to expensive repairs and additional expenses, potentially putting a strain on your finances.
Impact on negotiations: The absence of a home inspection contingency limits your ability to negotiate with the seller.
In a competitive market, where multiple offers are common, waiving the inspection contingency can make your offer more appealing to the seller.
However, this also means that you may have less leverage in negotiating the purchase price or requesting repairs based on any issues discovered later.
Lack of peace of mind: For many prospective buyers, a home inspection is crucial for their peace of mind.
It offers reassurance that they are making an informed decision and purchasing a property in good condition.
Legal implications: In some cases, waiving a home inspection contingency may have legal consequences.
If you discover a major issue with the property after the purchase and had waived the inspection, you may have limited legal recourse against the seller.
Inspection is a gamble
Waiving an inspection contingency clause when buying a home might seem like a good idea to win over sellers or simplify the closing process.
However, doing so could expose prospective homebuyers to serious issues that they might have missed during the inspection process.
Home inspections are meant to identify major issues such as plumbing or wiring defects, HVAC problems, or even safety hazards like mold or radon. Inspections should give potential buyers peace of mind before making a significant investment.
Ultimately, waiving is always a gamble and should be approached with caution by weighing all factors involved.
Difference between pre and during escrow inspection
During home buying process, understand the difference between a pre-purchase inspection and one done during escrow.
A pre-purchase inspection may not be as comprehensive as an escrow inspection report that uncovers significant problems like wiring or HVAC issues.
If you find the results of the inspection and there are a number of things wrong with the home, you can cancel the deal and only be out your option money. But you would still get your earnest money back, also known as the money deposit.
Now, if you waived the inspection, but you decided to have an inspection during the escrow period [which is smart by the way] and you discovered something wrong with the roof, and you backed out of the deal, yes you would lost your money deposit.
This is normally equal to 1% of the house purchase.
So if you bought a home for $300,000, you would lose $3,000
Moreover, by waiving this contingency clause in a hot real estate market, buyers may use this as a bargaining chip for a cash offer.
It’s necessary to weigh potential risks of waiving contingencies against peace of mind when considering your best interest.
Alternative Options to Protect Your Interests
However, there may be situations where a buyer might consider waiving this contingency.
While it is important to carefully evaluate the risks involved, there are alternative options available to protect your interests.
Pre-Inspection: Before deciding to waive the home inspection contingency, a buyer can opt to conduct a pre-inspection.
This involves hiring a professional inspector to assess the property before making an offer.
While this does come at an additional cost, it can provide valuable insight into the condition of the property and help uncover any potential issues.
Seller’s Disclosure: Requesting a seller’s disclosure is another way to gain information about the property’s condition.
Many sellers are legally required to disclose any known material defects or problems.
Reviewing this document can provide important details about the home, allowing buyers to make a more informed decision.
Certified Inspector: If you choose to waive the home inspection contingency, it is crucial to hire a certified home inspector.
Their expertise and knowledge can help identify any issues that may not have been disclosed by the seller.
Request for Repair: Instead of eliminating the home inspection contingency entirely, buyers can modify the terms to include a request for repairs.
This allows buyers to renegotiate or request that specific issues be addressed by the seller before proceeding with the purchase.
It provides an opportunity to rectify major concerns without completely backing out of the deal.
Specialized Inspections: Depending on the property type, additional specialized inspections may be necessary. For example, in older homes, issues such as faulty wiring or outdated plumbing systems may be a cause for concern.
Consult with a Real Estate Professional: Before making a decision, it is essential to discuss your options with a knowledgeable real estate agent.
They can provide valuable advice and help you understand the potential risks and benefits of waiving the home inspection contingency.
Purchase Price Adjustment: In some cases, buyers may opt to waive the home inspection contingency but negotiate a purchase price adjustment based on the condition of the property.
Final Take-aways
Waiving inspection contingencies can be a wise or risky move depending on your circumstances. If you’re in a hot market and have done your research, it may not be necessary.
However, if you are unsure about the condition of the property or want to protect yourself from unexpected repairs, it is best to keep the contingency clause intact.
You can also negotiate them with the seller to find a middle ground that works for both parties.
At the end of the day, it’s important to weigh the pros and cons before making any decisions.
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