3 min

Waive Inspection Contingency: Is it the Right Move?

Aug 25, 2022
in a nutshell
  • The homebuying market has been fiercely competitive for the last two years, & it’s pushed more buyers to strip the inspection clause from their bids.
  • You can take your own inspector or contractor when you first tour the house.
  • That kind of “pre-buy inspection” can give buyers peace of mind about not getting a formal inspection, but it can also be hard to pull off.
Image of Here are the pros and cons of waiving the inspection contingency when buying a home.
in a nutshell
  • The homebuying market has been fiercely competitive for the last two years, & it’s pushed more buyers to strip the inspection clause from their bids.
  • You can take your own inspector or contractor when you first tour the house.
  • That kind of “pre-buy inspection” can give buyers peace of mind about not getting a formal inspection, but it can also be hard to pull off.

Common real estate wisdom says it’s smart to get an inspection of a property before you buy it. Waiving a home inspection is unadvisable for most homebuyers.

But more buyers are taking the risk. More than 21% of accepted bids in 2021 removed the home inspection clause, according to forthcoming data from real estate website Redfin. In 2019, it was just 13%.

Blame the fiercely competitive homebuying market: An overwhelming lack of supply and persistently high demand has pushed prices to record highs.

“Removing the inspection contingency in a normal market is just insane,” says Marshall Malone, a real estate agent in the greater Birmingham area in Alabama. “You’re asking to buy a house without knowing what you’re buying.”

If you do feel pressure to take that risk in this competitive market, Malone and other agents have a hack that can mitigate some of the uncertainty of skipping the inspection, particularly if you’re planning to do renovations right away: Take a contractor or home inspector with you when you first tour the house with your agent.

Malone calls it a “pre-buy inspection,” but cautions it isn’t easy to pull off.

Why more buyers are dropping the inspection contingency

One of the biggest drivers of fierce competition in the homebuying market right now is the historically low number of houses on the market. There were about 833,000 homes on the market in the U.S. in January, according to Zillow’s January 2022 monthly market report.

Two years ago that number was almost double that at 1.5 million.

12 major U.S. metros where average home values have increased 40% or more in the last 2 years

Source: Zillow

The uptick in homebuyers during the pandemic, many of them older millennials, helped increase the price average of the average home 30% since January 2020, according to Zillow.

The demand is driving more and more people to make offers that are above list price and with as few contingencies as possible.

A pre-buy inspection can help hedge your bets

Here’s how Malone’s “pre-buy inspection” hack worked with a recent client: He and the client hired a home inspector for $350, and when Malone first showed his client the house, the inspector came with them and gave them a rundown of how stuff looked.

It “enabled us to know what we were buying, which allowed us to take off the inspection contingency,” Malone says, while “still hedging our bets.”

Malone and his client hired someone who inspects homes for a living, but a general contractor could get you the same result, he says. In a crowded bidding war, a strategy like that could be what takes your offer to the final round.

“I know of a house in my neighborhood that had seven offers. Four of them removed the inspection contingency. That’s unheard of,” Malone says.

So now, he’s giving some of his more eager clients some new advice. “What I say is, ‘Never skip the inspection. But if you really want to buy this house, then you have to skip it.’”

A pre-buy inspection can be difficult to accomplish

On paper, the idea of the pre-buy inspection sounds like a great idea that solves a big problem, but in practice, it can be difficult to pull off, says Joshua Blumen, an attorney who specializes in real estate transactions in Massachusetts and Rhode Island.

Here are three key reasons it could be challenging:

It’s hard to hire a contractor for this work

“Trying to get a contractor to show up” is hard, Blumen says. Contractors are in high demand right now and may not have time to tour homes with you.

Your lender might require a formal inspection

Some banks won’t approve loans unless there’s an inspection or an appraisal, Blumen points out.

The seller nixes your tag-along 

“In this market, sellers are savvy,” Blumen says, and they’re scrutinizing buyers and their offers very carefully. If they sense you’re removing a formal inspection but still angling to do a pre-buy walkthrough, they may pass on your offer, he says.

Even if you can get an inspector, contractor, or handyman to do a walkthrough with you, it may not be in time to make a competitive offer. Houses are selling quickly, and buyers need to see houses quickly and be prepared to make an offer on the spot in order to stand a chance, Blumen says.

“You may be competing with several other parties for what could be a very limited time slot,” he adds. When buyers are trying to get their own contractor or inspector on site that fast, it’s “hard to put together.”

Skipping the inspection doesn’t ensure you’ll win, either. Malone’s client who brought his own home inspector to the house tour lost that bid.

“We went $15,000 over asking. We took off the inspection contingency. And yet we still lost because somebody offered $10,000 more than us,” Malone says. “I have seen buyers get very discouraged and talk about giving up and coming back in a year, and my answer is, ‘Next year is going to be the same, if not worse.’”

This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.

Gabriel Cortés

Gabriel Cortés was a reporter and data journalist for Grow.

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