As a Real Estate Buyer, should I waive my right to a Home Inspection?
If you are actively in the real estate market to buy a home in the Greater Boston market place, then you have heard this question or even asked it yourself. As a Real Estate Buyer, should I waive my right to a Home Inspection? The answer is that it depends and today we are going to discuss who is a candidate to waive their right to a home inspection. This strategy is often suggested by Realtors to help their clients make their offers more competitive as it eliminates a contingency in the offer. Tom has a phrase that he often says, that you can’t fix something if you don’t own it, but this comes with the caveat that you have the money to do the repairs.
Before we get into this story, we want to explain why waiving the right to an inspection is so appealing to a home seller? The reason is because it has become customary in our market place that once an offer is submitted buyer and seller negotiate and come to an acceptable sales price. However, over the past 14 years buyers and their agents have used the inspection as a tool to renegotiate the transaction and the sellers and their agents are aware of this strategy. Often sellers are guarded during their negotiation because they fear the home inspection. Because this culture exists the waiving of the right to a home inspection has become a powerful tool for buyers to help their offer stand out in this multiple bid environment.
We too often see buyers who are waiving their right to inspect in a situation where they are doing 3-5% down and they are wanting to compete with higher down payment buyers. It is our opinion that the higher down payment buyers have earned the right to waive contingencies and this strategy should not be used by all buyers. Buyers with lower down payments need to be more conservative in our opinions because they don’t have the safety net required to handle the issues that can arise. Once you sign the deed and note the property is yours, and if you find out 6 months after you a buy a home that there is mold in the attic, that the electrical box has water, or that the boiler is at the end of it’s life you have a serious issue.
If you see the photo below from a home we sold a couple of years ago, it shows a home with an old kitchen that clearly needs updating. It is too often that in homes like this one, where buyers can see that the property needs updating, that they want to compete so they waive their right to inspection. What then happens is the scenario above where six months into the cosmetic renovations there is a safety issue that arises and that puts a hardship on the new home owners.
At this point, if you have purchased a home with a low down payment and are doing work yourself then you are forced to make the safety upgrade with credit or asking family for a loan.
At the Tom and Joanne Team, we feel that the only candidates who should consider waiving the right to the home inspection are those who after their 20% down payment have another 10-20% of capital in the bank. These candidates can absorb the impact of the “what if” that almost always comes up when buying a home.
When Tom bought his home in Concord he had to waive his right to inspect because he and his family were competing against two builders. As a Realtor, who has been through hundreds of home inspections, he has the trained eye to know what to look for and he even says there were things he missed. His cautionary tale is that the first day he moved his pregnant wife went to take a shower and there was no hot water! They have to replace the hot water tank at the tune of $1,200 dollars the first day of owning their new home. They represent the buyer profile listed above so they could handle this expense, and it is this first hand experience that has guided the Tom and Joanne team to properly advise their clients in making decisions during the offer process.
What if Tom had only put 3% down and had used all his cash for closing costs and moving costs. This unexpected cost would have had to go on a credit card or a call to family to ask for help.
So the question is often asked to us by buyers with lower down payments, how can we compete without waiving our inspection clause? That is a great question and the answer is that it is very easy to compete if you write an offer that addresses some obvious issues.
We sold Kate and Kevin a home a few years ago and it was clear from our home tour that the roof and boiler were fully depreciated. We suggested to Kate and Kevin to definitely have a home inspection, but that they should write into the offer that they acknowledge that the roof and boiler are fully depreciated and they are not going to part of their due diligence in their home inspection. When we were at the home inspection the seller’s agent told us that writing this clause into our offer was one of the key items that made our offer stand out.
The other strategy is to increase the aggregate amount of repairs that you are willing to take on as a result of the home inspection findings. A lot of agents and buyers feel that you have no discretion with this clause and that is incorrect. You can increase your threshold from the common practice of $0-$1,000 to $5,000 to $10,000 dollars. This gives you the protection that should there be a major repair needed you have the right to withdraw, but it also gives the seller the peace of mind that you are not going to nickel and dime them over a leaky faucet.
If you are in the market to buy a home and are looking for an advocate to interview please contact the Tom and Joanne Team.