This year the real estate industry is experiencing a market frenzy with a colossal amount of buyers looking for homes. The inventory of homes available is historically low. According to an article on keepingcurrentmatters.com, "A normal market's inventory sits at 6 months. We're currently at 3.7 months." Add to that, interest rates are also low.
When a house comes on the market, buyers flock to it. Most listings are receiving multiple offers so property values are continuing to rise. Buyers are pulling many different strings in order for their offers to be accepted including offering sellers significantly above list prices. They are also offering to meet the sellers' closing dates or to purchase the homes "as is." Some are waiving appraisals and others are even offering to waive inspection contingencies.
Inspection Contingencies Defined
When buyers and sellers agree on all the terms of a real estate contract, it is signed and delivered to all parties. Most real estate contracts have a 5-business day inspection contingency automatically written into the contract. This means that the buyers have 5 business days to have home inspections performed by professional inspection companies at their expense. These inspections can include, but aren't limited to: a whole house inspection, a radon inspection, a pest inspection, a mold inspection, a sewer inspection and a lead-based paint inspection.
Some buyers like to have the roofs inspected by roofing companies. Others like to have the heating, cooling and ventilation (HVAC) systems inspected. Some buyers like to have plumbing and electrical systems looked at by professional plumbers and electricians as well. If there are major defects or safety hazards found in any of these inspections, buyers have the right to ask the sellers to repair, remediate, replace or give them a monetary credit as consideration. Buyers also have the right to cancel contracts because of inspection results. Inspection contingencies are in place to protect buyers.
What Does Waiving Inspection Contingencies Mean?
If buyers decide to waive inspection contingencies, this means they are waiving the right to have any of these inspections performed. If buyers contract to purchase homes "as is," at least they can still have home inspections performed so they are made aware of any defects or safety hazards. If real estate agents recommend to their buyers to waive inspection contingencies, it could backfire and become a legal liability. Buyers who are doing this of their own accord should be asked to sign something that relieves their real estate agents and companies of any liability.
Why It's Not a Good Idea to Waive Inspection Contingencies
It's never a good idea to waive home inspection contingencies. When buyers visit homes during their home searches, they are excited and emotions can often take over. Buyers are busy looking at the rooms and the decor. They are envisioning how the homes will work for their families. They aren't thinking about what defects or safety hazards lurk behind walls or are out of sight. If a roof leaks, it can cause all kinds of havoc on the interior of a home. It can be very costly to repair or replace a roof, repair and replace drywall from leaks, repaint, replace flooring and stave off any mold growth. By way of example, electrical hazards behind walls and not visible can cause fires. Mold in attics can cause health issues. Radon is a cancer-causing gas. Buyers should always have home inspections so they know what they are facing when purchasing their homes.
The real estate industry shouldn't get to the point where buyers are expected to waive inspection contingencies. The outcome can be very costly and hazardous to buyers. The market is expected to start to balance in the near future and home values will, at a minimum, stay where they are. A more balanced market will hopefully cease buyers waiving inspection contingencies.