Habitation Investigation

WHY WAIVING THE HOME INSPECTION CONTINGENCY IS A MISTAKE

Many property sales hinge on a collection of contingencies, and why shouldn’t they? With hundreds of thousands of dollars—potentially millions—at stake depending on the property, it’s only natural to expect both buyers and sellers to seek their own protections. As individual markets become more seller-friendly, though, buyers incentivize the waiving of these contingencies to give their respective offers the competitive edge. This is a less common practice with homeowner’s insurance and financing contingencies since these determine whether the buyer actually has the capital to complete the transaction, but it’s become common practice to waive the home inspection contingency.

What is the Home Inspection Contingency?

The home inspection contingency gives a buyer the ability to cancel or renegotiate their property contract based on the findings of an independent, professional home inspector. The contingency is meant to protect buyers from investing in a home that is in chronic disrepair, and as a result, will never appreciate beyond its maintenance costs. It seems like a strange thing for a prospective buyer to waive, but it turns out to be an enticing bargaining chip for property sellers who resist the idea of receiving a full inspection report. This isn’t necessarily because resistant sellers have one or more major property flaws they’re trying to hide; it’s often because they fear that, once they know the full roster of their home’s deficiencies, they’re obligated to disclose them entirely to all future buyers.

The Case Against Waiving the Contingency

A seller with this mindset may favor buyers that don’t require a home inspection to complete the sale, especially if they have a pool of comparably competitive offers. A buyer, especially one enamored with the location or architecture of said seller’s home, may be willing to acquiesce in order to take pole position atop the offer pool. It’s an easy trap for a buyer to fall into, but unless you have a considerable amount of capital set aside for ongoing and unexpected repairs, it’s best to resist waiving the inspection contingency just for the sake of locking up your dream home. Also, when you wave the inspection contingency, you’re not just relinquishing your ability to back out of an unsavory property deal; you’re also putting the financial burden of needed repairs and renovations squarely on your shoulders. If the height of a home’s issues is a few broken windows and jamming doors, there’s considerably less risk; but if you’re dealing with terminally failing HVAC systems or you’ll need to bring in local roofers, it’s best to leave the contingency in place so there’s room to negotiate who foots the bill for major repairs. Not having a home inspection completed on your new home can also have a negative effect in regards to your home warranty. Home warranties often require that they see the home inspection report to verify that an item such as the water heater or air conditioner was working when the buyers were in the process of buying the home. Without the home inspection report confirming that the item was working some warranty companies are denying claims.

Making Your Offer More Enticing to Sellers Without Waiving the Contingency

As markets around the country return to a less buyer-friendly median, sellers are gaining more leverage, especially in the contingency negotiation process. For example, sellers can employ what’s known as a “kick-out clause,” which allows them to market their properties even during a negotiation with a specific buyer, should say buyer be unwilling to forego a home inspection or unable to schedule one within the agreed-upon time frame. During a highly competitive bidding process, it can seem like waiving your inspection contingency is the only way to distinguish your offer, but there are a few alternative compromises you can make to close the deal. Instead of a full home inspection, you could opt for a general home inspection contingency, which only requires a pass-fail inspection, as opposed to a full, itemized report. Buyers could also establish a cost of repair contingency, which establishes a pre-determined cap of funds the seller is obligated to commit towards needed repairs—often between 1 and 2% of the home’s estimated value. Navigating a home purchase and all its contingencies can be a daunting process filled with legal jargon and intense negotiation. Ultimately, though, the case for not waiving your home inspection contingency is a simple one: you don’t want to make a potentially life-altering investment without having as much information as you possibly can about what you’re investing in. 

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