The hot seller's market has caused many buyers to lose their cool when making competitive offers. Bidding wars are commonplace, and so are home inspection contingency waivers. According to Redfin, the percentage of homebuyers waiving the inspection nearly doubled during the pandemic, swelling from 7.3% to 13.2%.
Waiving a home inspection is a bold move that could pay off in terms of your offer standing out to sellers, but the risk can far outweigh the reward if you later discover the property has major issues. Real estate investing is inherently a risky business, but here are some questions to ponder before you take on this even greater risk.
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1. Do I have the extra cash for necessary repairs?
If you are about to enter a bidding war for a home, claiming victory could mean dipping further into your savings than you anticipated. And if you also waived the inspection contingency, there goes the funds for any emergency repairs, should they arise. If covering your mortgage, utilities, and other monthly costs already has you in a tight spot with finances, you could be in trouble if you need extra cash to cover any emergency fixes.
2. Will the house be my primary home or an investment property?
Who's going to be living under the roof when it starts to sag: you or a tenant? While it's not an ideal situation to deal with issues as an owner/occupant, it's even less of one for your tenant, who will raise quite the fuss -- and perhaps stop paying rent -- until the problem is taken care of. It's risky if you're moving into an uninspected home on your own, but it could be downright irresponsible if you've got a tenant lined up for it.
3. How long do I plan to live in this home?
If you view the home you intend to purchase as your "forever home," you might be OK with buying a fixer-upper. But if this property is not part of your long-term investment strategy, you have to wonder if you want to spend the short term there while it's mostly covered in drop cloths. You're aiming to make a profit on this home when it comes time to sell, so if you plan to do that in the near future, you don't want any value appreciation to get swallowed up by the added cost of renovation.
4. Do I feel lucky?
"Well, do ya, punk?" OK, so these two questions are actually Clint Eastwood's lines from Dirty Harry. And to be clear, he wasn't asking a homebuyer about waiving the home inspection -- but he might as well have been.
There's no doubt you're taking a big gamble when you purchase a home without first hiring a pro to inspect it, no matter how good it looks. A fresh coat of paint can mask all manner of cracks in the walls. Brand-new carpet can cover up uneven floors. And there are countless other problems that a first-time homeowner especially won't know to look for. Asbestos in the ceiling, termites in the walls, serious flaws in the foundation -- these are just some of the horrors that can come up in a home inspection. Finding them early gives you plenty of time to negotiate with the seller or run for the hills -- but not if you waive the contingency as part of your offer.
Consider the risks with the reward
It's important to note that you still can get a home inspection even if you waive it as part of your offer. It's not terribly expensive in the grand scheme of things, only about $340 on average, per Home Advisor. But the point about waiving it during the offer phase of the transaction is that you can't use any issues that come up as leverage in negotiating with the seller.
And that's precisely the point. People are so desperate to buy homes that they'll take properties in as-is condition -- yes, even burnt-out shells that aren't even homes anymore -- so they can rebuild the property just the way they like it. But if that strategy doesn't mesh with your budget or risk tolerance, it's better to wait until the market cools down so your cooler head can prevail.
