Home inspections aren’t required when buying a house, but they can reveal impending home improvement projects you’ll need to pay for in the future. Weigh the pros and cons of including an inspection contingency in your offer.

Trying to buy a home but haven’t gotten a bite on any of your offers? You’re not alone. In fact, there are more people like you than you probably even realize. This is exactly the problem: there are too many of us trying to buy a home and not enough inventory. 

To beat out the competition, many homebuyers choose to waive inspections, but that’s not always a good idea, especially if you’re new to owning a home and don’t fully understand the problems that could arise

Why some homebuyers are waiving inspections

Should You Skip Your Home Inspection? - Why some homebuyers are skipping inspections

Typically, buyers will skip an inspection when it’s a seller’s market. That means there are more buyers than houses listed for sale. Add in low interest rates and economic uncertainty making homeowners hesitant to list, and homes across the country are getting multiple offers in every price range. Homebuyers are trying to do anything to stand out, like waiving inspections, for example, but the problem with doing this is it could put you at financial risk down the road. 

What is included in a home inspection?

A home inspection covers the structure of the home, plus all of the mechanical systems that keep things going. This includes things like the foundation, heating and cooling systems, roof, windows, electric outlets, and appliances.

If you don’t get input on the age and condition of all of these features, you could be caught off guard when problems arise after you buy the house. And you could be on the hook for very costly repairs. 

Why you NEED an inspection

Once you close on a property, it’s yours. From leaking pipes to broken hot water heaters, every problem you find with the home after you close is yours to deal with.

Typically, once you get the results of an inspection, you can renegotiate with the seller to either make some repairs before closing or give you a credit to help you pay for unexpected issues. When you waive the inspection, you completely remove this additional round of negotiating. 

If you’re buying a fixer-upper that you know you’re going to gut, it may not be a problem. However, if you’re buying a home that is already at the top end of your budget and you think it’s 100% move-in ready, you could end up spending a lot more than you planned. This can cause a strain on other areas of your budget you enjoy, like eating out, casual shopping, or vacations. All of those unexpected repairs need to be addressed or you could risk further damage to the home. 

Alternative options when waiving an inspection

Should You Skip Your Home Inspection? - Alternative options when waiving an inspection

When it comes to real estate, there are always options. Try these two if you decide you want to waive an inspection. They are not as in-depth as an inspection, but they can give you better financial protection.

Complete an informal inspection before making an offer

A good option if you want to waive an inspection is to get the home inspected during an open house. This means you pay a contractor to go to the house with you and ask them to give you their honest feedback as you look at the house together. Ideally, it’s best to use a contractor you’ve worked with before, but it’s not necessary. 

Get your contractor to inspect the big-ticket items if you’re on a time crunch. This means the roof (visually inspected from the ground), as well as the crawl space to make sure there aren’t any drainage or foundation issues that need to be immediately addressed after closing. If there’s time, also get your contractor to do a quick visual of the electrical panels, as well as the hot-water heater and heating systems.

This information won’t help you if you’ve already waived the inspection, but if you do this before you make an offer, your contractor’s insights can help you choose a price you’re comfortable with, rather than bidding blindly. 

Buy a home warranty

You can buy a home warranty at any time, not just when you close on a new home. A home warranty provides some financial protection that pays for repairs or replacements if certain appliances and systems break. The only catch is that most policies require the covered items to be working before the warranty is purchased. This is a smart option if everything appears to be in good condition, but you’re worried problems will arise in the near future. 

There are many types of home warranties to choose from with a range of costs and coverage available. Some warranty companies offer discounts to new homeowners who purchase a policy shortly after closing. 

Tips for making a strong offer other than waiving your inspection

Should You Skip Your Home Inspection? - Tips for making a strong offer

There are a number of things you can do to make your offer strong that don’t involve waiving inspection. Of course, doing them doesn’t guarantee anything, but you’ll definitely put your best foot forward in a seller-friendly market. 

Get pre-approved for a mortgage

Include a pre-approval letter from your mortgage lender to show the seller you have the financial backing to finalize the deal. No matter how easy you think it will be to qualify for a loan, the seller needs to see that you have financing in place, or they’re likely to pick someone who seems more likely to get approved for a loan.

Add an escalation clause

An escalation clause eliminates all of the usual back and forth that normally happens during a bidding war. Instead, it automatically puts in a higher offer if you’re outbid up to a maximum amount. 

The benefit is that you can tailor it to suit your needs and comfort level. Most people who use escalation clauses will have their offer go up by $2,500 or $5,000 over any competing offer that beats their starting point. The drawback to escalation clauses in this market is that many sellers are asking buyers to simply submit their strongest offer from the beginning. Some are open to this type of clause, but many aren’t.  

Make a large earnest money deposit

The standard earnest money deposit is 1% of the purchase price. If you walk away from a house for a reason that wasn’t outlined in the contract, the seller gets to keep that money. The larger the earnest money deposit, the more they’ll get to potentially keep if you break the deal.

Instead of making a $3,500 deposit on a $350,000 home, for example, you could offer $7,000. The great thing is that the money still goes towards your down payment if you close, so the chances of losing that cash are low.

Make the inspection for informational purposes only

Rather than waiving an inspection altogether, add a stipulation in your offer that it will be for informational purposes only. This strategy tells the seller that you won’t make any requests for repairs or ask for a lower purchase price after you review the inspection report. The plus side to doing this for you is that you can still walk away from the deal. However, depending on the wording, you may lose your earnest money deposit. This is definitely one to discuss with your real estate agent.

Make a large down payment

A big down payment also shows you have the ability to close a deal. Even if you’re happy with the monthly payments with a lower down payment, a higher deposit may nudge you ahead of the competition. For sellers, it gives the appearance of a stronger financial position than other offers with lower down payments.

Offer cash over a low appraisal

Using a cash-above-appraisal contingency is when you offer to pay the seller a certain amount of money in the event it comes in lower than the purchase price. For example, say a homebuyer offers a seller $400,000 with the contingency to pay up to an additional $10,000 above a low appraisal. The home only appraises for $375,000, but because of the appraisal contingency, the seller ends up with $385,000 when all is said and done. You’ll need more cash to make this work, but you would also end up with a lower mortgage.

Dumpster clause

Including a “dumpster clause” in your offer is when you tell the seller they can leave behind anything they don’t want to move or throw away themselves. It’s not much, but can be appealing to homeowners who may be downsizing or already have their hands full.

Avoid standard offer amounts

When bidding over the seller’s asking price, many homebuyers stick to whole numbers.  For example, homes listed for $290,000 may get offers of $300,000 or $305,000 (or more, depending on your local real estate market). To beat out your competition, you could offer an amount that’s just over what you would anticipate as a standard offer, like $303,000 or $307,000 instead. If you do this, you may beat out a lot of first-time homebuyers.

Ask sellers for an early review of your offer

If you think you have a strong offer, you can try giving the seller a fast deadline to respond, or you’ll walk away. Sellers with updated homes most likely won’t fall for this, but if they feel their home has some issues, they may go with it. And of course, you have to be comfortable to follow through on your firm offer.

Summary

Waiving an inspection isn’t always a good idea, but sometimes it is (especially if you feel confident the house doesn’t have any major issues). However, if you’re purchasing a home that is already at the top end of your budget, you may want to consider some other alternatives. 

With so many offers going well beyond the asking price, appraisers are having a hard time keeping up and aren’t approving as many loan amounts as you might think. If you can, offer cash-above a low appraisal instead of waiving an inspection. It’s better for both you and the seller. 

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About the author

Lauren Ward
Total Articles: 24
Lauren Ward is a personal finance writer covering credit, mortgages, small business, investing, and more. She lives in Virginia and previously worked at the Federal Reserve Bank of Richmond and in nonprofit fundraising. You can find her on LinkedIn or on Twitter.