Amid the COVID-19 pandemic, many people are choosing to make their home offer more competitive by waiving their home inspection. But is this the right decision?
What Does it Mean to Waive the Inspection Contingency?
The inspection contingency is a standard part of most Offers to Purchase real estate in Massachusetts. If your inspection turns up major problems, the inspection contingency gives you the right to back out and recover your deposit. In other words, the inspection contingency gives you the time and opportunity to verify the condition of the property before you sign a Purchase and Sales Agreement. Once that agreement is signed, you will be required to pay a substantial down payment.
When you waive the inspection contingency you are agreeing to accept the property in “as is” condition. You agree to own whatever problems come with the property. You are about to make a long-term investment in this property. Knowing that your home is free from major problems should be a serious consideration before you make an offer to waive your inspection contingency. This is your money, and you want to be sure you’re spending it on a good investment.
What Are the Risks?
A licensed home inspector can assist in identifying potential problems with your new home. For example, your inspector may uncover evidence of water damage, termites, or mold. A professional home inspection may reveal that your new home will need a new roof in a few years, or that your water heater or A/C needs to be replaced.
It is not uncommon for an inspection to turn up problems you would not notice in your walk through. And if these problems turn up on your home inspection report, the inspection contingency gives you an opportunity to negotiate with the Seller. Typically, when both parties want to make a deal, these issues are resolved with the Seller either agreeing to make repairs or reducing the original price. And if you can’t come to an agreement, the inspection contingency allows you to walk away with your deposit.
When you waive your inspection contingency, you assume all financial risk for whatever condition the property is in and the repairs required. Sometimes the fix is relatively simple and inexpensive. But if your problems are serious, what you don’t know can add thousands, and in some case, tens of thousands to the true cost of buying that property.
To some clients, waiving the inspection contingency is worth it for them to buy their dream home. The additional cost of making repairs was a risk they understood and a price they were willing and able to pay. However, this is not the route for everyone.
How to Minimize Your Risk
Waiving the inspection contingency can be an effective offer strategy, if you know what you are doing. Here are some tips to help minimize your risk:
- Make sure you have the financial means to take this path. In a competitive market, waiving the home inspection contingency makes sense if you are a well-financed buyer. If you aren’t, this isn’t a strategy for you. You don’t want to take the risk of footing a bill for thousands of dollars when you don’t have the means to do so.
- Pay for a professional home inspection before you sign the Purchase and Sales Agreement. Waiving the inspection contingency does not prevent you from having a home inspection. It just means you won’t be able to use results from an inspection to negotiate remedies or price with the Seller. It is always wise to have your home inspected, regardless of whether it is part of the contingency.
- If the inspection turns up something that makes you want to walk away, you still can. Yes, you will forfeit your offer deposit, but it’s a much smaller loss than forfeiting the down payment you’ll be required to make when you sign the P&S.
There are serious considerations to take into account when waiving your inspection contingency. A home is a huge investment! While in this market, it may seem like an easy choice to make your offer more attractive, you could be paying more than you bargained for down the line if it turns out your new home has serious problems. Weigh all your options before waiving your inspection contingency and make sure you know the risks. In all circumstances, it is best for you to consult with an experience real estate attorney prior to submitting an offer. Please call our office for a free consultation so that we can help you make a wise investment.