Waiving Inspection Contingencies in a Seller’s Market

By James Goldsmith | Oct. 11, 2019 | 5 min. read

With little inventory, buyers are having to fight their way into properties. Higher deposits and full price offers are common. So, too, is the waiver of inspection contingencies.

Most sellers are happy to receive an offer sans an inspection contingency. For that reason, desperate buyers are all too willing to waive the inspection contingency if it will land them the home of their choice.

How do you advise buyers who have lost their bids on other properties and who might benefit from waiving the inspection contingency? Do you advise your buyer that foregoing an inspection might be the key to getting that house they want? We know that buying a home without an inspection is a gamble. For a home known to need a complete makeover, it may be a small gamble. For someone exhausting their funds to buy a home that appears to be in move-in shape, it may be a big gamble. Because it is the buyer who takes this gamble, the decision rests with the buyer.

I offer this analogy. I receive calls from brokers who have been sued over a relatively small matter. Some want to know whether the matter should be reported to the errors and omissions insurer or whether the broker should go it alone and waive the coverage and its benefits. If reported, the insurer will handle costs of defense and the damages imposed, if any.  Reporting may also lead to increased premiums. If a broker seeks my advice, I might agree that the matter appears to be of little threat and that it may be resolved for less than the increased premium. I also emphasize that if the suit blows up into a big loss, then it is the broker’s problem. Further, suits with little merit and seemingly low damage potential may cost a great deal of money to defend. Without insurance coverage, the risk falls on the broker and therefore, only the broker can make the call. I refuse to advise a broker not to notify the E&O insurer.

Likewise, I think it’s not appropriate for a salesperson to advise a buyer to waive a home inspection. It is appropriate to explain that a waived inspection may be perceived as a better offer and therefore more likely to be accepted, but buying a home with a huge latent defect is hardly a win. Further, a buyer who waived the inspection contingency and who ends up with a lemon, is likely to remember your admonition far differently, if at all. I am defending multiple suits against licensees for having “advised” their buyers to waive inspection contingencies.

I understand why offers are made without inspection contingencies, though I think there are other options that can make an offer more attractive. The obvious considerations are to offer a higher purchase price and provide a larger deposit. There is another path that retains the inspection, but minimizes the impact of that inspection on a seller. When a seller receives multiple offers, a buyer agent may be told that the offer will be held until the other promised offers are received so that they may be compared and contrasted. Why not make your offer subject to an inspection contingency that will be completed by the time the other offers are received or reviewed? How is this possible?

There are inspectors, who for a higher fee, may quickly attend to a home inspection, say in a day or two. Find inspectors willing to do so. If the buyer’s contingencies end in a day or two, by the time the buyer elects to stay with or terminate the agreement, the other offers may not even be in hand. Some buyers are willing to limit their rights under the inspection contingency to accepting the property or terminating the agreement. They signal that they will keep the deal or move on, but will not submit a corrective proposal. This gives you, the buyer agent, the ability to tell the listing agent that if your buyer bails because of the inspection, it will happen before the listing agent even entertains the other offers that are claimed to be coming in. Coupled with a good purchase price and high deposit, this just may be the ticket.

Waiving the mortgage contingency may also make an offer more attractive. That may sound drastic and, in many cases, it is.  But there are many offers that are contingent upon the receipt of a mortgage with less than a loan-to-value ratio of way less than 80%. This enables the buyer to have every confidence that the mortgage will be approved.

Additionally, many buyers who are funding their purchase with mortgages, have the ability to pay cash. In these cases, it might be worth suggesting that your buyer waive their mortgage contingency period. Yes, if the mortgage does not fund the transaction, then the buyer has to complete it by some other means or suffer breach and loss of the deposit. Again, you can’t suggest that your buyer do anything more than consider the possibility. It is entirely up to your buyer to determine whether to take your advice. It is something to offer for consideration without your suggesting that the buyer do so. You are suggesting that they consider it and weigh all the pros and cons.

There are multiple ways to make an offer more attractive. The options need to be carefully weighed and not all risks that will be appropriate for all buyers. It is up to your buyer to determine how to proceed. It is up to you to detail the available avenues noting their relative risks and benefits.

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