In the typical home-buying process, the buyer employs a home inspector shortly after the offer is accepted by the seller. This surely takes time and some money to complete the process.
However, it’s not “mandatory”, meaning you have the option to waive the home inspection. In many cases, this may result in a faster acceptance of your offer by the seller.
The question is, should you waive a home inspection? What are the risks of doing so? What are the benefits? How can you mitigate the risks? Let’s find out.
What is a Home Inspection?
Many new property buyers confuse a home inspection with a home appraisal. While they may seem like the same thing, they’re fundamentally different.
By definition, a home inspection is “an examination of the condition and safety of a piece of real estate, often conducted when the home is being sold”.
Appraisal, on the other hand, is “an unbiased professional opinion of a home’s value and is required whenever a mortgage is involved in buying, refinancing, or selling”.
As you can see, a home inspection looks more into the materialistic aspect of the property while an appraisal puts a value on the property. An appraisal is almost always employed by the mortgage lender while a home inspector is hired by the buyer.
A home inspection results in an itemized report of all the major elements of the property. Foundation, plumbing, insulation, sanitary, drainage, structural integrity, etc.
These things are taken into consideration during an inspection to ensure the home is in working and safe condition for the new buyer to move into.
This inspection gives the buyers a home inspection contingency to either proceed or back out of the deal. After the initial deal is signed and the security deposit is paid, the buyer still gets to pull out of the deal if something serious comes out during an inspection, and gets the deposit back penalty free.
If you waive the inspection, you also lose the right to get out of the deal, meaning you won’t get your deposit back. It’s just one of the downfalls of what might happen if you decide to waive inspections when buying a property.
The Risks of Waiving Home Inspection
So what are the risks of waiving a home inspection? Let’s dive in…
Water Damage or Mold
Water damage can be brutal to a house’s structural integrity. Mold, on the other hand, is extremely hazardous to health, especially for people with existing respiratory issues. Many times, you can’t see water damage or mold growth with the naked eye. It can be hidden in the walls or ceiling.
AC/Heating Systems
In the past decade or so, the building codes for heating and cooling elements have changed a lot. Inspectors can identify current code violations that need to be addressed.
They also can look for damaged or broken parts in the A/C and Furnace systems such as a cracked heat exchange. Inspectors may also test the airflow to see if there is enough air pressure coming from the system through the various vents in the home. Sometimes upstairs vents don’t have as much airflow coming into the rooms, causing temperature efficiency issues.
Electrical Systems
Every year, over 30,000 electrical fires damage billions of dollars of property. And let’s not go into the safety hazard it imposes on the residents as well as the neighbors.
Such issues are easily identifiable if you have the eyes of a professional home inspector. If not, you’re going for the biggest gamble of your life.
Inspectors can find code violations of previous electrical work some home owners do themselves without pulling proper permits or inspections.
Inspectors will test outlets as well to make sure they are wired properly and help you avoid arcing / fires.
Expensive Repairs
Make sure to include a home inspection contingency in the contract. If critical issues come up in an inspection report but you still want the property, then both parties can reach an agreement with some negotiation.
For example, you can ask the seller to knock the repair costs off the price. Or, the seller can perform the repairs before handing the keys over.
If not, the continency allows you to walk away with the initial deposit returned to you, no harm done.
However, when you waive home inspections, you’re agreeing to get the home “as is”. And after the final signing is done, none of your claims against the seller will hold in court if you find issues with the home.
Of course, there are many instances of waived properties turning out just fine. The real question is whether you’re ready to take such a risk or not when you’re dealing with hundreds of thousands of dollars of money.
Why Do People Even Consider Waiving the Home Inspection Contingency?
That’s a good question. If potential home buyers are still doing it despite the risks, there must be some benefits to it, right?
Faster Offer Acceptance
It’s true in areas where there are limited properties for sale but a lot of buyers. At the end of the day, it’s the seller who needs to accept your offer. By waiving the home inspection contingency, you make the offer more lucrative for the seller.
The reason is simple. You can’t bother them every time there is an issue with the property. Also, it means the final signing process will be fast-tracked in some cases since there’s less contingencies to get through in the deal.
Monetary Benefit
To be honest, we don’t consider it a benefit at all. A typical home inspection costs between $300 to $500 and only takes a few hours. Are you really saving money compared to the risk you’re taking by waiving the home inspection?
This $500 inspection might help you negotiate a reduction in purchase price of $5,000 because of needed repairs, saving you money.
Do I Need Inspections on Newly Constructed Properties?
Well, the risks are certainly lower if we’re talking about newly built houses and condos. As long as a reputable developer is behind the project, you should have nothing to worry about. Then again, there is no “definitive” way of knowing whether everything is in order or not.
The biggest risk with new properties is that the utilities haven’t been tested long enough to develop issues. Everything might look fresh on the surface but may tell a different story underneath. We highly recommend getting the inspection done regardless of how old the property is.
And ask the builder if they provide a home warranty with the new construction property in case things pop up during the first year or two of living there. Some warranties are good for 10 years, like a structural warranty, for example.
How to Minimize the Risks for Buyers?
Well, if you’re still going to waive the home inspection contingency, you must be prepared on multiple fronts. Here are some tips for you to mitigate the risks.
- Financial Backup: If you’re ready to buy a property “as is”, have the mentality as well as the financial backup to go through intensive repairs.
- Inspect Anyways: The home inspection contingency and the home inspection are not the same things. You may waive the contingency to get an upper hand over other buyers but nothing is stopping you from doing the inspection anyways. This way, you can be prepared for what’s coming your way.
- Walk Away: If the inspection turns out negative, as in there are issues that break the deal for you, you still have the option to walk away. The drawback here is that you won’t be getting your initial deposit back. Compared to the losses you may take by buying a faulty property, the deposit is a smaller loss overall.
- “Professional Inspector”: Anyone with construction knowledge is not a home inspector. To sustain in this profession, one must go through intensive training and get certified by the American Society of Home Inspectors. Don’t settle for non-professional inspectors to save a few bucks.
Final Words
The home inspection is a very critical aspect of buying a property, regardless of the contingency. A home-buying transaction is often the largest transaction in an individual’s life. So, it’s not recommended that you waive the home inspection contingency for any reason.
Sure, it might take a little longer for you to find the perfect home. You may even have to repeat the inspection process multiple times if the previous properties didn’t work out. But you’re still taking the right approach because it’s better to be safe than sorry.