There’s one “Hot Market Hazard” which makes my stomach churn, and that’s when the buyer comes downs with a case of “house fever” so severe that they’re willing to waive the home inspection contingency completely to “win” a multiple offer situation.
Many markets are definitely “hot” right now. We have a record low home inventory for sale, and an incredibly low number of new listings coming online to satisfy buyer demand. And, the numbers indicate we’ll be in a seller’s market for quite some time to come.
For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.
In Brief – What is an Inspection Contingency?
The home inspection contingency is the period in which the buyer has time to perform their “due diligence” of sorts – the time to order the primary inspection, and any others which may apply to that particular property. If the buyer isn’t satisfied for any reason (in the Seattle area, most inspection contingencies are up to the buyer’s “subjective” satisfaction), then they can terminate the sale within the contingency period, and receive all of their earnest money back – unless a portion of the earnest money was actually a “non-refundable deposit” (not the case in most contracts).
In the Seattle area, the “customary” inspection period for a typical single-family home is 7-10 days. However, in this strong seller’s market where buyers are forced to play leapfrog to “win” a bidding war, an inspection period of 5 days (or even less) is becoming more the norm. Unfortunately, so is waiving the inspection contingency completely.
Pre-Inspections Before & After Listing For Sale
A Buyer Pre-Inspection
Buyers do have the option of performing a “pre-inspection” if the seller agrees in writing. In this case, the buyer can have an inspection performed before deciding whether or not to submit an offer.
This can be quite beneficial for the seller too, as it allows them to keep the home “active” on the market. But again, in a hot seller’s market where 10-20 or more offers may be expected, many sellers will not accommodate this request – obviously, they don’t need to with so many interested buyers. And, it’s understandable – they don’t want a half-dozen inspectors with their clients picking-apart the home if it can be avoided.
A Seller’s Inspection Before Listing
Many listing agents in a “hot” market will advise sellers to avoid inspection contingency concerns by suggesting that the homeowners have their own inspection done by a licensed inspector before listing the home for sale – in fact, some listing agents suggest this regardless of the market conditions. Granted, some buyers may not be comfortable with the lack of “control” of the process; but if multiple offers are expected, there will surely be one or more buyers willing to accept the seller’s inspection report, and therefore be comfortable writing an offer which waives the contingency.
To Waive, or Not to Waive
If as a buyer, you find yourself in a multiple offer situation where no inspections have been performed, and the seller isn’t allowing “pre-inspections,” please think twice about waiving the inspection. Don’t let the emotion of the situation cloud your better judgment. Even if the home is relatively “new” – ask yourself if the thrill of “winning” that particular home is worth the unknown risks of what may lay beneath the pretty exterior.
In a seller’s market, competition between homebuyers is fierce. Bidding wars and rapid selling times mean buyers have to sweeten the pot to secure a property, which is possible by waiving the inspection contingency. By waving that step, sellers can not only save money, but time as well. This makes them more likely to pick buyers who waive the inspection and make the purchase without that additional information.
Without an inspection, buyers just have to hope for the best, as they do not know what lurks beyond their line of sight. The inspection can reveal problems with the appliances, hidden mold growth, and many other potentially costly issues. But if they are lucky, or able to do the legwork themselves, then skipping the inspection could pay off. In most cases, it is best to complete the inspection, however, even if that means missing out on a few prime properties along the way.
Yes, the home may in fact be a perfect gem. But, it could also have major issues that no one is aware of – which could cost you thousands of dollars, and more. In extreme circumstances, the condition of the property could cost you the entire investment (a rare exception – but it has happened).
So, don’t get caught up in the moment, and don’t allow anyone to pressure you. Be sure to take the time to have a serious chat with your agent before agreeing to waive the inspection contingency.
For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.