Is it ever smart to waive a home inspection?

At the height of the market frenzy, as homebuyers vied for a limited supply of properties, many shoppers made a concession that’s almost unthinkable in a normal housing market: They waived inspection, assuring sellers that they wouldn’t use a home inspector’s findings to haggle for repair costs or wiggle out of the deal. While the market has largely calmed down since then, sellers are still very much in the driver’s seat in this era of scarce housing inventory. It’s not as common for buyers to waive inspections anymore, but it does still happen.

It’s in the buyer’s best interest to have a home inspected before they become the new owner. Inspections alert you to existing or potential problems with the home, giving you not just an early heads up but also a useful negotiating tactic.

However, it is possible to waive the typical inspection contingency without getting burned. You just 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 inspection contingency without waiving the inspection itself.

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 (and more).

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 an 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 low-inventory market, some buyers may want to make their offers stand out by agreeing to ignore minor issues. Rather than skipping inspection entirely, though, savvy bidders can modify 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, who is also the 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 could 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 fully 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. Both require an industry pro to come inspect the property in person, but for different reasons.

An 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 assessing its condition and comparing it to similar properties that have recently sold. 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 buyers do to beat the competition?

Buyers need to move strategically in competitive markets. If you’re doing battle, or preparing to, here are some tips to help you land a property:

• Get preapproved before shopping: Mortgage preapproval goes beyond a prequalifcation, which is based on a credit check, to include an analysis of your tax returns, bank statements and pay stubs. Sellers looking at multiple offers will pick the surest thing, and a preapproval letter gives your offer a better chance of getting accepted.
• Move fast: Inventory shortages mean homes might sell quickly, so be ready to tour properties the moment they hit the market. If there is a need for speed in your area, now is not the time to haggle over minor repairs and other small sticking points.
• 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 very hot markets, the asking price is often the floor. If possible, consider making a cash offer, which means no lengthy financing process and is looked on favorably by sellers.
• Use the 99-cent rule in reverse: Sellers often use “just below” pricing to make things seem cheaper. That’s why retailers will price items at $1.99 instead of $2 — and why homeowners 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.

Bottom line

As a buyer, the home inspection exists for your protection. It can alert you to minor problems before they become major ones, and major problems before they become your problem. You should always have a home inspected before buying it. But in a very competitive market, waiving the inspection contingency — meaning you still want the information, but you won’t hold the seller responsible for making or paying for repairs — can be a smart move. This makes your offer more appealing while still keeping you informed.