Never Waive the Home Inspection Contingency

If you’re buying a home in an often competitive real estate market like Portland, Oregon’s and your offers keep getting beat out, you may be tempted to resort to desperate measures. Home buyers may be tempted to offer more than the asking price, agree to a quick closing, make their earnest money non-refundable, waive the appraisal contingency, agree to free rent back, and or waive the home inspection contingency.

Here’s our guide on how to win a bidding war.

The home inspection is just one of four main contingencies included in most Oregon real estate contracts. They exist to protect home buyers; any one of the contingencies can reveal information that affects the value of the home, causing the buyer to sometimes terminate the sale and get their earnest money refunded. While few home buyers would consider skipping reading the seller’s property disclosure or title report or appraisal results, somehow the home inspection has come to be viewed as optional. Here’s why it’s definitely not.

The 4 Basic Contingencies in When Buying a Home

A contingency in a real estate contract is a provision for an unforeseen event or circumstance that could affect the buyer’s willingness to complete the deal. Usually, they allow the buyer to withdraw from the deal and receive all or part of their earnest money back. Read more about earnest money here.

In Oregon, there are four basic contingencies: a home inspection, a property disclosure, a preliminary title report, and an appraisal continency. These help avoid any surprises the buyer might have after moving in — no liens on the title, no leaks in the roof. The appraisal contingency means the lender will to appraise the property to affirm that the amount of the loan is not exceeding the value of the home. If the home is financed there also typically exists a finance contingency, which means that the buyer can back out if they cannot obtain the loan. But this contingency needs to be proven by their lender.

In a buyers’ market, there may be even more contingencies than this. Buyers can add any kind of contingency they like, such as closing by a specific date or finding the home satisfactory on a final walk-through.

However, the Portland real estate market is often a sellers’ market, especially for first time home buyers looking for more affordable properties, and so rather than adding contingencies, buyers are more likely to actually waive them altogether. Waiving one or more of the four may be acceptable in certain, very specific situations, but normally, it’s not advised.

The Home Inspection Contingency

A home inspection is typically performed by a licensed individual who has a knack for seeing what sellers, buyers, and their real estate agents can’t see. They leave no stone unturned to fully assess the condition of the home. In addition to basics like flooring, walls and foundations, they typically check out all of the home’s “mechanics”, including appliances, water, electrical and plumbing systems. They often get up on the roof to inspect its condition and crawl under home if there is a crawlspace.

This inspection is often called a general home inspection, because the inspector may not be qualified to fully assess problems outside of their control. For example, there might be a major electrical problem, but the inspector is not an electrician. However, in this case, the home inspector has many tools to detect potential electrical problems, can find red flags, and then encourage the home buyer to have an electrician come out for a more detailed look.

Once finished, the home inspector will hand the buyer and their real estate agent a detailed report showing what they found in the home. This report will not say anything about the home value, but it will flag things the seller might not have known about, and aid in determining if there’s anything that should be repaired before the home changes hands.

Even if the home appears to be in good condition, an experienced buyers’ agent will not advise them to sweeten the initial offer by skipping the inspection. No matter how affordable and desirable the home, it will become much less so if costly (think tens of thousands of dollars) in maintenance issues are discovered too late. The inspection could be a breeze, but some issues in Portland, especially leaking underground oil tanks, radon, and mold are often hard, if impossible to spot. Remedies can be written into the sales contract, but only if the issues are discovered. For buyers, knowledge is power.

But don’t the other contingencies make the inspection redundant?

It may sound like a lot of layers of protection. The seller’s property disclosure contingency requires home sellers to check off a list of problems the home may or may not have. However, it is important to realize that the property condition questionnaire the seller fills out and gives to you is only based on their best knowledge. The seller may not be aware of a home’s major and unseen problems, and if the seller is not aware of the problem, the seller is not responsible for the problem the home buyer inherits.

The preliminary title report shows any issues with the home’s title, and these typically turn the sale into a pass / fail situation. Typically, all potential title problems must be solved prior to close.

The appraisal contingency exists for the buyer, and while the appraisal is paid for by the home buyer, the appraiser is actually working on behalf of their lender. If there is a loan on the home, the bank will want to ensure the general home value stands up to their money they are lending out. Appraisers do not conduct in-depth inspections of the home. In my experienced (licensed since 2003, overseeing thousands of home sales) the appraiser spends fifteen minutes in the home on average. Typically the appraiser is only looking for major and obvious problems with a home, like a leaking roof or a safety hazard. So once again, the importance of having a home inspection becomes clear. A home inspector looks for unseen problems, those issues the seller may not be able to see and appraisers won’t notice.

The bottom line is, there’s no substitution for a thorough home inspection by a licensed inspector. You shouldn’t waive any of the contingencies, but if you really feel as if the home inspection is going to be a sticking point in the negotiations, there are other options.

Alternatives to Waiving the Home Inspection

Depending on your situation, these alternatives may not be practical. Always discuss your options with your real estate agent.

1. Pre-inspect the home. You can still get a home inspection, without making the sale contingent on what it turns up. A pre-inspection happens before you even make an offer on the home. The challenge is that home inspectors are not always available on short notice, but your real estate agent may be able to pull some strings. Getting the inspection done before the offer is in also means you’ll be paying a few hundred dollars to inspect a home you may not even buy. But if you feel like the home is in generally good condition, and that waiving the inspection as a contingency in the contract would help, it may be a workable option.
2. Rely on the sellers’ inspection. Some sellers may have the property inspected themselves before listing it on the market. It helps them price the home more accurately and address issues ahead of time so that they can not be used to negotiate a lower price for the home. Some buyers may skip their own inspection if they can see a copy of the sellers’ inspection report. However, if work has been done on the property after the sellers’ inspection, it would make sense to have another inspection done, this time on behalf of the buyer.
3. Walk away. If the other buyers making offers on the home are caught up in the bidding war, and making concessions on price, repairs and other contract terms, chances are you are not going to get a good deal anyway. Better to wait for another home to come on the real estate market, and make an offer you won’t be kicking yourself for down the road!

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Have other home inspection or real estate buying questions? Ask your local Portland buyers agent team! Our top 1% buyers agents are led by Kami Price, Principal Broker in Oregon since 2004. She’s guided hundreds of home buyers into their next best home. I highly recommend giving her office a call today at 503-773-0000. There is no one I trust more with my home buying clients. And of course, if you have a property to sell, I’d love to hear from you direct. Give us a call today or chat with the bot on this site. We look forward to connecting!