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How to waive a home inspection contingency 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.

You might have to waive the inspection contingency to land a house, but that doesn’t mean buyers must forgo all protections. Buyers should still schedule an inspection — skipping it altogether “is kind of crazy,” says Christian Adams, a former real estate broker who runs Repair Pricer.

The aim is to identify small 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.

Waive the inspection contingency, but not the inspection

A home inspection is a standard part of the home-buying 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.

The goal of a home inspection is to uncover major problems — water leaks, mold infestations, cracks in support beams. In a buyer’s market or a balanced market, buyers often use the inspection as a bargaining chip. A toilet that runs occasionally 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.

The home inspection contingency, meanwhile, 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 contingencies entirely, savvy bidders are modifying the language in their offers, says Katie Severance, an agent at Brown Harris Stevens in Upper Montclair, New Jersey.

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 that you’re scouting for only 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 waive the inspection contingency, you still should reserve the right to conduct an inspection for the purposes of gathering information, Severance and Adams say. And even if you’ve agreed that your offer is not contingent on an inspection, a serious defect in the home can let you off the hook, they say. 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.

Understanding the process

Most people buy a home only once a decade or so, and the details can get confusing. Adams says many buyers — and particularly first-time buyers — don’t grasp the difference between an inspection and an appraisal.

The inspection focuses on the systems and the structural soundness of the house. If an inspector identifies potential 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 enter the house. While the appraiser will measure rooms, he probably won’t run the dishwasher or flip light switches on and off.

If you’re taking 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 homebuyers can do

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

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.

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.

Make an aggressive offer. In normal markets, the asking price acts as a ceiling. It’s a number that reflects sellers’ aspirations, but not the reality of the market. 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 price items at $1.99 instead of $2 — and it’s 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.