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Competition is hot. Can you waive a home inspection without getting burned?

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As homebuyers vie for a limited supply of properties, many shoppers are making a concession that would be unthinkable in a normal housing market: They’re assuring sellers that they won’t use a home inspector’s findings to haggle for repair costs or wiggle out of a deal.

Buyers in many areas are waiving home inspection contingencies. It’s yet another sign that, in an era of record-low inventories, sellers are very much in the driver’s seat. “That’s just part of the reality right now,” says Joe Tyrrell, president of ICE Mortgage Technology.

It is possible to waive the typical inspection contingency without getting burned. But you need to be smart about it. Don’t forgo all protections. Instead, reserve the right to conduct an inspection for the purposes of gathering information, while letting the seller know you won’t hold them responsible for making any needed repairs. This means, in a competitive market, waiving the home inspection contingency without waiving the inspection itself.

What are the risks of waiving a home inspection?

A home inspection is a standard part of the homebuying process. After a buyer’s offer is accepted, the buyer hires a licensed professional who checks the wiring, flushes the toilets, peers into the attic and tests the heating and air conditioning systems.

In a buyer’s market or a more balanced market, buyers often use the inspection as a bargaining chip. For example, a toilet that runs doesn’t affect the underlying safety and soundness of the home, but it does present an opportunity for the buyer to ask for a repair or credit from the seller.

Under normal circumstances, you would never want to waive a home inspection. Buying a home is the biggest purchase many people ever make. Having a home inspection conducted before finalizing the purchase protects your financial interests. This is because inspections are designed to uncover any problems with the home. If you skip it, you risk serious issues that could cost you a great deal of money down the line, such as asbestos, mold infestation or cracks in foundations or support beams.

Waive the contingency, but not the inspection

The home inspection contingency, however, is a bit of legalese that gives a buyer a way out of a deal.

In today’s super-competitive market, buyers are making their offers stand out by agreeing to ignore minor issues. Rather than skipping inspection entirely, though, savvy bidders are modifying the language in their offers, says Katie Severance, an agent with Douglas Elliman in Palm Beach, Florida. For instance, you might still conduct an inspection but promise the seller that you’ll overlook any single repair valued at less than $500. Or you might specify that you’re scouting only for major issues such as mold, radon or a faulty foundation.

“The buyer hopes to send the message to the seller that they’re not going to nickel-and-dime them,” says Severance, author of “The Brilliant Home Buyer: 101 Tips for Buying a Home in the New Economy.”

If you do waive the inspection contingency, you still should reserve the right to conduct an inspection for the purposes of gathering information, Severance says. And even if you’ve agreed that your offer is not contingent on an inspection, a serious defect in the home might let you off the hook. For instance, the presence of toxic mold in a home would give the buyer legal cause to back out of the deal, even if you’ve waived the inspection contingency.

Home inspection vs. appraisal

Most people buy a home only once a decade or so, and the details can get confusing. Many buyers — particularly first-time buyers — don’t grasp the difference between an inspection and an appraisal, says Christian Adams, a former real estate broker and CEO of Repair Pricer, a company that estimates the cost to repair an inspection’s findings.

The inspection focuses on the systems and the structural soundness of the house. The aim is to identify problems that, if neglected, can create major issues while you own the home. “A $1,200 plumbing repair can turn into $1 million,” Adams says. If an inspector identifies potential problems, particularly significant problems such as toxic mold or a cracked foundation, he might call in experts for further study.

An appraisal, on the other hand, estimates the value of the house by comparing it to similar properties that have recently sold. An appraiser might or might not even enter the house. If you’re taking out a mortgage to buy the house, the lender will require an appraisal — it’s a safeguard designed to protect the mortgage company from lending more than the property is worth. Lenders typically don’t require inspections, however.

What else can homebuyers can do to beat out the competition?

Buyers are at a disadvantage in today’s seller’s market. If you’re doing battle, or preparing to, here are some tips to help you land a property:

  • Go through full underwriting before shopping. In more sedate times, a pre-qualification letter from a lender satisfies most sellers. These days, a pre-qualification letter is no guarantee of having your offer accepted. Sellers looking at multiple offers will pick the surest thing. Go well beyond a pre-qualification letter, which is based on a credit check, and get a pre-approval letter that is based on a lender’s underwriting of your tax return, bank statements and pay stubs.
  • Move fast. Inventory shortages mean homes are selling quickly. Agents say you should be ready to tour properties the moment they hit the market. With so many buyers forgoing appraisals and inspections, now is not the time to haggle over minor repairs and other small sticking points. The need for speed means many buyers also are making offers before even setting foot inside a property.
  • Make an aggressive offer. Historically, a home’s asking price has acted as a ceiling. It’s a number that reflects sellers’ aspirations, but not necessarily the reality of the market. But in this market, the asking price is often the floor. A cash offer usually means fewer contingencies around appraisals, inspections and continued employment, so sellers look at those bids favorably.
  • Use the 99-cent rule in reverse. Sellers use “just below” pricing to make things seem cheaper. That’s why retailers often price items at $1.99 instead of $2 — and why sellers list homes at $299,000 instead of $300,000. As a buyer, make your offer stand out by rounding up — offer $300,000 instead of $299,000, or $310,000 instead of $309,000.

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Written by
Jeff Ostrowski
Senior mortgage reporter
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.
Edited by
Senior real estate editor