No Inspection? No Problem, Homebuyers Say

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Desperate times call for desperate measures, and homebuyers facing fierce competition for the few houses on the market are increasingly going without the safeguard of pre-purchase home inspections, real estate agents say. 

Key Takeaways

  • A feeding frenzy for the few houses on the market has caused buyers to streamline their offers by foregoing inspections.
  • Real estate agents in some areas of the country say homebuyers now skip pre-purchase home inspections more often than not.
  • Realtors warn the trend could cause buyers to regret their decision if problems with the home are discovered later.

Agents on the front lines of the pandemic’s residential real estate boom say going without home inspections is not only a more common, though perhaps ill-advised, gambit, but is even becoming the norm in some places. While one real estate firm, Redfin, said the proportion of successful offers around the country that waived home inspections nearly doubled to 13.2% for the six months through February (compared to the same time period a year before), individual realtors in some areas report it’s the vast majority.

“I see more of the waiving, which I find incredibly foolish,” said Alison Malkin, a real estate broker and owner of a Re/Max agency in Avon, Connecticut. “I have been involved in every up and down of the housing market since the mid-’80s, since I’ve been working, and I have never seen anything like this.” 

Low interest rates, increased demand for more space to work from home, and a shortage of sellers are a recipe for surging prices and a manic market. Besides waiving inspection contingencies, bidding wars, larger down payments, and offers over the asking price have gotten more common as buyers scramble for the few homes on the market, Redfin said.

Inspection contingencies in real estate sales exist for good reason—to allow buyers to back out of a deal if a house has something seriously wrong with it, or to negotiate repairs if the inspector discovers problems. 

‘Clean’ Offers Preferred

Around 60% to 70% of home purchase offers in the Grand Rapids, Michigan, area are made without inspections these days, estimated Gene Szpeinski, managing broker for a Keller Williams office of 145 agents there. In Tacoma, Washington, the proportion of homes going without an inspection is more like 97%, at least among those sold by Brian Richards, a Redfin real estate agent in that city, Richards said.

“The market is a feeding frenzy right now, and therefore buyers are being urged to consider making their offers as clean as possible,” Szpeinski said. “I don’t like the trend, but I understand why the trend is there.”

The logic is simple: All things being equal, when a seller is faced with multiple offers, they’re more likely to choose the one with the fewest contingencies, Richards said. 

“Basically every home we have, has multiple offers,” Richards said. “Virtually every one has waived inspections, and virtually every home goes for at least $25,000—or sometimes even $100,000 or $200,000, in extreme circumstances—over list price.” 

For example, he recently listed an older two-bedroom, one-bathroom bungalow for $300,000, which set off a bidding war that saw 28 offers and the price escalating to $385,000, with no inspection. 

“When somebody wants something, they don’t care. They do what it takes to win,” he said.

A Risky Business

Buyers who go without inspections run the risk of getting into trouble, Re/Max’s Malkin warned, which is why she has her clients who make no-inspection offers sign a document saying they are going against the advice of their real estate agent.

For example, one of her clients—a contractor who knew the risks, and who was desperate to buy an investment property—gave up an inspection and paid $225,000 in cash for a gut job of a home that had been listed for $175,000. After completing the sale, he discovered that a septic tank on the property, located under a shed, needed to be replaced (a job that typically costs more than $6,000 even without the shed complication, according to HomeAdvisor estimates). 

One way to mitigate the risk is to buy a home warranty after the fact, said Szpeinski, the broker for Keller Williams. Such warranties—more accurately called service contracts—cover the cost of repairing covered items, such as appliances and HVAC systems, if they stop working.  

Another method is for buyers to pay out-of-pocket for an inspection before even making an offer, instead of the usual practice of doing so afterwards. Redfin’s Richards said this strategy, which is increasingly common, could give buyers confidence they don’t make an offer on a home with major hidden problems. (This tactic is not without its downsides, say real estate experts, who note that inspections can run hundreds of dollars. This cost could add up for buyers making offers on multiple houses.)

With so many offers flying around—one home in the Grand Rapids area recently sold after receiving 73 bids, according to Szpeinski—sellers have a distinct upper hand.

“Man, it’s not a good time to be a consumer when buying real estate in regard to protecting yourself as best you can,” he said. “Sellers have complete control right now…If you see someone sitting on a curb crying, it’s probably a buyer who just lost the sixth house that they bid on.”