Homebuyers Waiving Home Inspections: What Are the Risks?
An alarming trend is homebuyers waiving their right to perform a home inspection. In fact, According to the National Association of Realtors, in 2020-2021, nearly 20% of homebuyers waived their rights to a home inspection. In this post we answer the question, "Does it make sense to waive your inspection rights?"
The COVID-19 Pandemic has had a significant impact on real estate. The past two years have been a roller coaster ride, from low-interest rates to soaring house prices. One alarming trend that appears to have been caused by the Pandemic is homebuyers waiving their right to perform a home inspection. In fact, According to the National Association of Realtors, in 2020-2021, nearly 20% of homebuyers waived their rights to a home inspection.
WHY ARE PEOPLE WAIVING INSPECTIONS?
There are several reasons why homebuyers might waive their right to an inspection, but the two most common ones are anticipated cost, limited inventory, and time pressure. Many homebuyers believe that they will have to lay out thousands of dollars to have a home inspection performed, which is not the case. Other homebuyers who feel rushed to buy a property may be inclined to skip the inspection in order to speed up the process. Similarly, with homes still in short supply, many homebuyers bidding on a property against other buyers may feel that they can't afford to lose the house by waiting for an inspection.
WHAT ARE THE RISKS OF WAIVING AN INSPECTION?
The risks of waiving an inspection vary depending on each situation, but some of the most common risks include:
Buying a property with undisclosed defects
Buying a property that may not be able to be insured or resold
Not being able to negotiate a price reduction, credit, or repair
Not knowing when to walk away from a deal
Being unable to cancel the contract
If you ever saw the film, the Money Pit, starring Tom Hanks, you will understand why homebuyers should never skip an inspection. In the movie, a young couple purchases their dream home for a bargain. However, after moving in, all hell breaks loose when it is revealed that the house has severe structural defects and needs hundreds of thousands of dollars worth of repairs.
Although the Money Pit is an exaggerated, fictional account, the film has some truth. Many homebuyers who have waived inspections end up having to spend tens of thousands of dollars to fix a home they just purchased. Many first-time homebuyers do not have enough money to make the necessary repairs and are stuck with a money pit.
Even if you are not buying a home but are looking for an investment property, it is still important to have an inspection done. I recently spoke with an investor who waived his right to an inspection on a rental property he was interested in and ended up paying $75,000 in repairs to the property.
HOW MUCH DOES IT COST TO HAVE A HOME INSPECTION?
The cost of having a home inspection depends on the property's size, location, and age. Most inspections typically range between $300 to $600 for single-family properties. If you live in a pricey region like New York, your house inspection may easily cost $1,000 or more. In my opinion, the home inspection cost is well worth it. It is better to pay $600 for an inspection and work away from a property than it is to spend thousands of dollars for repairs after you have bought it.
WHAT HAPPENS DURING A HOME INSPECTION?
A licensed home inspector conducts several tests to determine if any latent or patent defects with the property may affect its value or condition over time. Latent defects are hidden problems such as faulty wiring, while patent defects can be seen by everyone, such as cracks in the foundation or water stains on ceilings that could signify a water leak.
During the home inspection, a licensed inspector will look for signs of problems in these areas:
Plumbing and electrical systems
Heating and air conditioning systems
Water heaters, furnaces, and other appliances
Interior walls, windows, and doors, including any mold or mildew issues that may be present
Occasionally inspectors might need to do an infrared scan to determine if there are leaks or hidden moisture issues
insect or vermin infestation
WHY IS IT IMPORTANT TO HAVE A HOME INSPECTION?
A home inspection is essential because it allows home buyers to have a clearer picture of what they are buying. The inspection might also identify latent defects such as mold in the attic, foundation cracks, or problems with the wiring. An inspection can help you discover if there are any hazards that could result in an injury on your property down the road. It can also give you peace of mind about your investment and protect you against potential lawsuits and legal issues in the future. In addition, having an independent report done by someone who doesn't stand to gain anything financially from it will help ensure that nothing has been missed.
Keep in mind that if you waive an inspection, you will not have an inspection contingency clause in the contract. You may be unable to cancel the contract even if you notice a significant issue with the house before the closing.
What is an Inspection Contingency Clause?
An inspection contingency clause is a term in the contract that allows the buyer to terminate the contract and receive their deposit back if they are not happy with the home inspection results. It can also enable the buyer to terminate the contract if the parties cannot agree to reduce the purchase price, provide a credit at closing, or make repairs before closing. An inspection contingency clause is one way for buyers to get out of a real estate contract. As noted above, if you waive your right to an inspection, you will not have an inspection contingency clause in your contract.
CAN AN INSPECTION HELP ME NEGOTIATE?
An inspection can help homebuyers negotiate credits or price reductions. After an inspection report is provided, the buyer will typically ask the seller to make repairs or provide a credit at closing. Whether you need a water heater replaced or some faulty wiring fixed, having an inspector on your side can give you more bargaining power.
IT IS IMPORTANT TO PERFORM A HOME INSPECTION
A home inspection is essential because it allows home buyers to have a clearer picture of what they are buying. The inspection might also identify latent defects such as mold in the attic, foundation cracks, or problems with the wiring. An inspection can help you discover if there are any hazards that could result in an injury on your property down the road. It can also give you peace of mind about your investment and protect you against potential lawsuits and legal issues in the future.
In addition, having an independent report done by someone who doesn't stand to gain anything financially from it will help ensure that nothing has been missed.
When it comes to buying a home, you should never cut corners. Make sure to have an inspection done so that you can avoid any costly repairs down the line.
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