The housing market has become ridiculously competitive in much of the country, leading to buyers taking extreme steps to make their offers more attractive to sellers.
One of the ways that buyer’s agents are sometimes making offers more enticing is by removing the home inspection contingency. Is this really a good idea?
There are huge risks to skipping the inspection contingency in most parts of the United States, but particularly in the Northeast and Western New York state.
What is the home inspection contingency, anyway?
It’s the mechanism in the home purchase contracts that provides you, the buyer, the ability to have a home inspection and easily back out of the purchase if you’re unhappy with the results. The contingency period is limited to a number of days, typically anywhere from 3-15 days after the contract is signed by both parties.
The home inspection contingency has traditionally been used for two reasons:
- The buyer can (obviously) have the home inspected by a licensed and experienced home inspector. The buyer is then empowered to negotiate down the price of the house to make up for deficiencies uncovered during the inspection, or they can walk away from the deal completely.
- The buyer can back out of the purchase contract for any reason (at least the contract terms that I’m familiar with allow for this). This is a huge advantage for buyers because it provides for you to spend extra time in the house (during the inspection), consider if you really like the house, and easily cancel the contract.
Does the seller have to inform buyers about problems?
In many states, laws require sellers to disclose known defects to prospective buyers. States such as California have incredibly strict disclosure requirements, but my state of New York has rather weak disclosure laws.
In New York state, the Property Disclosure Statement is a 48-question document that the seller is required to complete on their own, and according to Hausit.com, “New York laws are very friendly towards home sellers when it comes to property condition disclosures.”
Make sure you’re looking out for your best interests when thinking about buying a home without having it first inspected!
Why do real estate agents sometimes recommend skipping the inspection contingency?
The extremely low number of houses on the market has led to incredible competition, especially in the $100-250k price range. On top of that, historically low interest rates are making home ownership attainable for a large number of buyers.
These factors have together made for a frenzied bidding process, where agents and buyers want to do everything possible to increase the odds of their bid being accepted.
Home shoppers are getting frustrated because they want to finally own a home, and agents are frustrated because they are writing offer after offer with no success.
Let’s look at some of the items that are usually considered when making an offer on a house:
- Purchase price
- Down payment
- Cash offer versus financing
- Type of financing
- Loan contingency versus no loan contingency
- Home inspection contingency versus no home inspection
- Closing date
- Items included in sale, i.e. appliances
In uber competitive markets like ours here in Western NY, buyers and their agents are sometimes doing everything possible to make their offers more attractive, and sellers are being coached by their agents to accept the offer that is in their best interest in terms of price, closing time and certainty of the deal closing.
Since the home inspection is an enormous variable that has an unpredictable outcome, offers without this contingency are viewed as being more certain to actually close.
Stated simply, sellers usually don’t care about anything except getting the best price and ensuring that the sale closes on time.
What are the risks to you as a buyer if you don’t have your home inspected?
A professional home inspection performed by an independent and unbiased home inspector has the potential to uncover significant problems with your home that may cost thousands of dollars to repair.
Home inspections provided by Alto Home Inspection, LLC, in particular, are detailed visual assessments of a home’s structure, roof, exterior, electrical, plumbing, heating, cooling, interior and other areas of the home. The home inspection report that we provide is intended to serve as a guide describing the observed problems and their relative importance.
We’ve inspected houses with foundations that are falling apart (or missing altogether), dangerous electrical conditions, failed sewer pipes and other concerns that would cost from $5-15,000 to repair.
Alternatives to pre-purchase home inspections
Homeowners, inspectors and real estate agents have come up with a few ways of avoiding a full pre-purchase home inspection, while also providing at least some level assessment prior to making an offer on the house.
Let’s look at a few of these options:
The family friend who’s “in construction” looks at the house
I’ve heard that buyers are having their “construction guy” friend walk through a house during a showing. The assumption is that they use their vast knowledge of construction to make a determination if the house is going to be a money pit. This is certainly better than nothing, but in general home inspectors have a level of training that equips us to find problems, whereas construction people are generally trained to build new things.
Having a licensed home inspector perform a walkthrough
I’ve personally conducted many of these “verbal” walkthrough assessments for home buyers in Erie County, NY and the surrounding Western NY areas.
Nerdwallet suggests including such a walkthrough as an “informational inspection” in the contract, but I’ve done most of these during a 30-45 minute home showing timeslot.
I try to be as efficient with my time as possible during any home inspection, and for me I can provide some level of inspection for an entire 2,000 square foot house in 30 minutes or less.
If the house is an older one, focus is placed on the foundation, structure, roof, electrical and plumbing systems. For other homes, the verbal assessment is adjusted to make the best use of the time given.
This type of quick inspection obviously comes with no guarantee, and no written report. But, the results should be much better than the alternatives.
Can funds be held in escrow in case problems are found after closing?
I don’t know if this is legally viable or if it would ever be accepted by a seller, but if I was in a position of having to skip out on a home inspection on a house that’s over 30 years old, I would want to do this.
Why is it extra risky in the Buffalo area to skip the inspection contingency?
As of 2021, this means that in Erie County, the average house was built in 1959. Construction practices in the 1950s were most definitely not up to modern standards. It wouldn’t be unusual to find substantial problems during a home inspection of a house of this age. One common problem would be a sewer lateral that’s rusted through, requirement replacement that may cost $5,000. Another issue could be a cinder block foundation that’s crumbling and requires replacement or huge repairs costing upwards of $10,000.
Experience as a licensed home inspector near Orchard Park, NY tells me that, unfortunately, many houses are offered for sale without these big issues being addressed. I’m not suggesting that most houses have these huge repairs waiting for buyers, but the risk is certainly there.
Homeowners insurance companies sometimes require inspections
Although it seems to be uncommon, homeowners insurance companies sometimes require that buyers provide home inspection reports to them. I personally was required to do so when I bought my home, which was built in 1996.
Whether or not you’re required to provide an inspection report to your insurance company or broker appears to depend on the underwriting guidelines of the insurance company, age and location of the home.
Based on contacts I’ve received over the years, my understanding is that there’s normally a grace period provided by the insurance company for the new homeowner to have an inspection scheduled and performed.
What are your options if a big problem is found after skipping the home inspection?
Unless special accommodations were made in your purchase contract, or if the seller’s disclosure was missing something, you most likely have no recourse.
Make sure you discuss with your attorney and family before moving forward with a home purchase without a home inspection contingency. At the very least, try to have a verbal inspection.