Risks of Waiving Home Inspections

You’ve finally found the home of your dreams but, in this market, you’ll likely find out that it’s the home of many other buyers’ dreams as well. 

Bidding wars are common in today’s white-hot real estate market and, as a result, many buyers are waiving contingencies — including the inspection contingency — to make their offers more appealing. In fact, according to the National Association of REALTORS®, 23% of buyers waived the inspection contingency in February, up from 20% the previous month. 

While it may help an offer stand out, forgoing the inspection contingency does come with risks. If you're planning to buy a home this year, here's what you should know before agreeing to waive your inspection.

What is an inspection contingency?

According to the American Society of Home Inspections (ASHI), “a home inspection is an objective visual examination of the physical structure and systems of a house, from the roof to the foundation.” Though typically not required by your mortgage lender, an inspection is a highly recommended step to ensure you’re making a wise investment. 

In a normal housing market, nearly all purchase contracts include an inspection contingency clause, a provision that allows the buyers to hire a home inspector of their choosing to thoroughly evaluate the property for any major problems. With this contingency, a sale cannot move forward unless the buyer and seller agree on how to handle repairs (if any are found). The seller may agree to cover some of the costs, or the buyer may be able to negotiate a lower purchase price. If an agreement can’t be reached, the buyer has the option to walk away from the deal with their earnest money deposit. 

What are the risks of waiving the inspection contingency? 

When a buyer waives the inspection contingency, they assume all financial risk for whatever condition the property is in — and whatever repairs are required. Sometimes a fix is relatively simple and inexpensive, but Jason Murton with Accurate Inspections LLC says the biggest risk is that buyers could be taking on a property with unknown safety hazards and costly repairs. 

“The big-ticket items are the real concern,” said Murton. “A homeowner may be okay with a $2,000 repair, but the average cost of a new roof is around $20,000, and it could run $7,000-$8,000 to replace an HVAC system or $10,000 to replace a sewer line. Not only are these repairs expensive but finding a contractor to fix the issues in a timely manner is also difficult in today’s market.” 

How can you minimize risk? 

Rather than skipping the inspection entirely, some savvy bidders are modifying the wording in their offers. For instance, a buyer might still include a general inspection contingency that gives them the right to void the contract, but not ask for repairs. Or they may include an inspection “for informational purposes only” where the sale is not contingent on the inspection, and anything found can’t be negotiated. 

With an informational inspection, if costly repairs do come up, the buyer can still walk away, though they would likely forfeit the earnest money deposit. 

Murton says his team is also conducting many post-close inspections in which the home was purchased without an inspection, the deal is done, and any findings are the responsibility of the new homeowner.  

“It at least gives the homeowner a heads-up on potential problems they may encounter,” he said. “However, there is still a risk that we will uncover some major issues. We did one in which we found about $10,000 in repairs the new homeowners had not planned on. Unfortunately, that is the risk you take when you waive the inspection contingency, so buyers need to fully understand what they’re agreeing to.”

Buyers also have the option of purchasing a home warranty that can help to cover repairs or replacement if essential home systemas and appliances break down after the home purchase.

“Our company does not require an inspection in order to purchase a home warranty,” said Ray Stark, Western Michigan area sales manager and team leader with America’s Preferred Home Warranty. “If a buyer waives a home inspection, a home warranty may provide peace of mind that if a covered item fails due to normal wear and tear, they will have coverage to help offset those costs.” 

While a home warranty may not cover all items that may be examined during a home inspection, it can be a perfect complement to an inspection and provide some extra budget protection. 

Whether to include an inspection contingency or buy a home warranty are just some of the many decisions you’ll make throughout your home buying journey. With a purchase this large, it’s important to lean on the professionals for guidance. For a list of area service providers including REALTORS®, lenders, home inspectors, and home warranty companies, visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.