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Waiving Inspection Contingencies in a Seller’s Market

By: James Goldsmith, Esq. on in

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 forego an inspection 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 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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Comments (8)

Comments

  • Kathy Opperman   October 11, 2019 at 7:58 am

    One of the ways we have successfully waived inspections is to return to a favorite version of mine of the old inspection clause by adding a $ limit. Therefore the buyer is not stuck with a large latent defect. Buyer shall have inspections but agrees to accept the property unless the cost to repair defects noted in inspections are in excess of $xxxxx. If cost to repair conditions exceed $xxxx then buyer may terminate, or negotiate with seller within xxxx….

    Reply to Kathy Opperman
  • SCOTT D GELLER   October 11, 2019 at 8:33 am

    Jim, remember the old option for a “deductible” in the inspection contingency? A Buyer’s Agent could offer this to their client: 13. Buyer agrees to accept the Property with the results of any report(s) and agrees to the RELEASE in paragraph 28 of this Agreement if the total cost to correct the conditions stated in the report(s) is less than $______ (the “Deductible Amount”). Otherwise, all provisions of paragraph 13 shall apply, except that Seller will be deemed to have satisfied the terms of Buyer’s Proposal if Seller agrees to perform corrections or offer credits such that the cumulative cost of any uncorrected or uncredited condition(s) is less than or equal to the Deductible Amount.

    Reply to SCOTT D GELLER
  • Cindy Knotts   October 11, 2019 at 8:44 am

    How do you feel about having the buyer sign something acknowledging you advised them to get a home inspection and they are choosing to wave it?

    Reply to Cindy Knotts
  • SCOTT D GELLER   October 11, 2019 at 11:01 am

    Kathy, great minds think alike! Also, we old (experienced) professionals know our Standard Forms history!

    Reply to SCOTT D GELLER
  • Gary L Cassel   October 11, 2019 at 11:44 am

    I will always recommend the Buyer perform a home inspection, and let the Buyer decide if they feel by waiving the home inspection might increase their chances of getting the Seller to move forward on their offer. However, if the Buyer elects to waive the home inspection, I will have the Buyer sign an acknowledgement that I specifically recommended a home inspection, the Buyer elected to proceed against my professional advice, and fully releases myself, my Company, from any and all liability due to their choice to waive the home inspection.

    Reply to Gary L Cassel
  • Kathy Opperman   October 11, 2019 at 3:50 pm

    Scott, I was one of those who were opposed getting rid of that paragraph. We now lose more transactions on home inspection contingencies than any time in my 30 years as a manager. I wish it were back! It really helped to keep the transactions moving forward!

    Reply to Kathy Opperman
  • Jim Goldsmith   October 14, 2019 at 10:07 am

    Scott, I well remember the “deductible” inspection contingency. I also remember disputes about the whether the buyer’s cost of repair was inflated etc.
    The inspection contingency has always been the most difficult clause to craft. Its use is impacted by swings in the market as well as the motivation and the “gamesmanship” of the parties. I’ve noted for many years that a house sells twice. The second sale is after receipt of the home inspection report.
    A Nobel prize to the person who comes up with the one perfect inspection contingency!

    Reply to Jim Goldsmith
  • JA Rud   October 17, 2019 at 6:50 am

    No need for a signature. Just put it in a short email plus you can ask them to initial the waiver clause for a permanent record.

    Reply to JA Rud

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