Waiving home inspection gives sellers less worry, but can also prevent buyers the chance to uncover costly problems. With added pressure for buyers to waive inspection to make competitive offers worth sellers’ consideration, there are many implications it may cause.
The residential real estate market has become highly competitive for buyers over the past few years. Buyers sometimes waive home inspection to compel sellers to choose their offer over competing offers or save on closing costs. Although waiving home inspection may urge the seller to select the waiving buyer’s offer, it markedly impacts the buyer’s post-sale legal rights concerning the property’s condition.
What is Home Inspection?
An inspection is generally a visual examination of a property completed by a third party on behalf of the buyer. Mold, radon, damage to the foundation, hidden damage (like water damage), and the conditions of the property’s systems and structure (like HVAC, plumbing, and electric) are common issues inspectors check for during an inspection. Because some inspectors specialize in specific areas, such as pools, a general inspector will indicate in their report that the buyer should consider hiring a specialist to inspect a particular part of the property.
In Pennsylvania, home inspectors are not required to be licensed by the Commonwealth, but must be members of an association of home inspectors which meet certain legal requirements. These requirements include requiring its members to (1) pass a recognized or accredited examination testing knowledge of the proper procedures for conducting a home inspection and (2) perform or participate in more than 100 home inspections before becoming a full member.
Home inspection is a regular part of offers to purchase real estate. Typically, the contract to buy a property includes a home inspection contingency clause where buyers can back out of the purchase agreement and recover their offer deposit if the inspection reveals certain problems. Ultimately, it gives buyers the time and opportunity to verify the property’s condition before signing a purchase agreement. These inspections increase buyers’ confidence about a property’s condition before closing and allow buyers to negotiate repairs with sellers or back away from buying properties with significant issues.
Effect of Waiving Inspection
Waiving home inspection makes an offer more competitive and favorable for a seller — there are fewer delays in the sale process and an increased chance of a finalized sale. Yet, buyers who waive inspection may be exposing themselves to significant risks.
Sellers must generally disclose all known damage and defects to buyers. Nevertheless, sellers may be unaware of major issues with their property. If a buyer waives inspection and later discovers major, undisclosed problems after purchasing a property, their ability to hold the seller legally responsible is severely limited. A buyer may also not be successful in keeping the seller legally liable for property defects if they waive inspection, even if a seller has misrepresented their property’s condition.
Pennsylvania is a “buyer beware” state, meaning buyers have no recourse against sellers for property defects unless a seller misrepresented the property. To obtain relief, buyers must prove that the seller lied to them about the problem. Inspections, therefore, are crucial for buyers because it is the only way to be informed about defects in a property beyond the seller’s disclosures.
How to Make a Competitive Offer Without Waiving Inspection
Still, there are ways to make a competitive offer without waiving inspection. First, having a mortgage pre-approval letter from a lender proves that a buyer is serious and can get the financing to close the deal. Next, buyers can ask for an “informational inspection” instead of an “inspection contingency” in their offers. By having this language, a seller will know that the buyer will be getting a full professional inspection, but only for the buyer’s information and that the buyer will not be asking the seller to pay for issues the inspection may reveal. Buyers can also offer to make a larger down payment. Lastly, buyers can opt to propose an escalation clause. Sellers benefit from these clauses because they eliminate the need for negotiations between competing buyers.
What About When a Buyer Must Waive Inspection?
There are still ways to protect buyers if the only way to purchase a property requires waiving the inspection contingency. Waiving the inspection does not mean the buyers waive their right to inspection — they can still retain the right to have an inspector examine the property. If the inspection reveals defects in the property, the buyer may have to walk away from the offer and purchase agreement and lose their deposit but will not suffer financially in the long term.
Depending on the circumstances, other alternatives to waiving inspection may be possible to make an offer more appealing to sellers. Doing so requires special expertise and knowledge about the current market conditions and real estate law.
In limited circumstances, waiving home inspection may be part of a business strategy, especially for real estate investors with substantial assets that have the flexibility to take financial risks. However, for most homebuyers, waiving inspection is not an acceptable risk. It may be a costly mistake. When purchasing a property, you must understand the financial risk and implications of all the terms in your offer and purchase agreement. The best approach to purchasing a home is to talk with an experienced real estate attorney.
If you have questions about whether or not to waive your home inspection, contact your legal counsel or one of the Real Estate attorneys at KingSpry.