Should I Waive My Inspection Contingency?

August 9, 2021 | 
inspection contingency
An estimated 28 million Americans will be looking for a new home this year—but there are only one million homes projected to be up for sale. If you’re looking for a new home, the pressure is on to make your purchase offer as tempting as possible. 

This means doing anything you can to make the seller’s experience smooth and quick.

Many home buyers are being tempted to waive the inspection contingency to help motivate the seller to go with their offer. But is waiving your inspection contingency a good idea? 

After all, you know that there are many very good reasons to get a home inspection before purchasing a house. Is it worth skipping the inspection just to get your offer accepted?

Buying a home can be overwhelming, and it’s difficult to navigate all the industry terms and paperwork to decide which items are essential, and which others can be skipped. If you ask us, a home inspection contingency should be at the bottom of your list of things to waive—it’s that important. 

Read on for more information on what a home inspection contingency is and why some home buyers choose to waive it. Then, we’ll go over three alternative ways to make your offer appealing without resorting to waiving your right to a home inspection.

First things first: What is a home inspection contingency?

An inspection contingency is a standard component of an average home purchase agreement. It makes the purchase contingent on the results of a home inspection. 

In other words, the inspection contingency gives the buyers the time to get a home inspection before signing the final Purchase and Sales Agreement and makes the sale dependent on the results of the home inspection. 

A professional home inspection is normally considered an essential part of the home-buying process, and for good reason. The buyer hires a home inspector to conduct a thorough review of the home’s systems and components—to check for any health and safety problems, repair needs, or anything out of order—before the home sale is finalized.

If the home inspection report reveals problems significant enough to cause the buyer to change their mind about their purchase, the home inspection contingency gives the home buyer the right to back out of the sale and recover their deposit. 

What are common contingencies when buying a house?

An inspection contingency is just one of several common contingency clauses, which all define a specific condition that must be met in order for the real estate transaction to become legally binding. 

Other types of contingencies include:

  • Appraisal contingency—If the property doesn’t appraise for the specified amount or more, the buyer can back out of the sale
  • Financing/Mortgage contingency—If the buyer cannot obtain financing from a lender, they can back out of the sale
  • Home sale contingency—The buyer has a certain amount of time to sell their current home. If their home doesn’t sell within that time (or sells for less than expected), they can back out.

For such a large transaction, it makes sense that both parties would want to put protections in place.

What does waiving contingencies mean?

In some competitive markets, home buyers may be asked to waive one or more contingencies to make their offer more appealing to the sellers. “Waiving a contingency” means choosing not to include it in the purchase agreement—and giving up the protection it would have afforded.

Waiving the inspection contingency, specifically, means you agree to accept the property “as-is.” You’re giving up your right to hire an inspector, or at least to use the inspection results to negotiate changes to—or walk away from—the final contract.  

Is it ever a good idea to waive the inspection contingency?

Since the inspection contingency is an important protection for buyers, it can seem unthinkable to simply give that up. But many buyers choose to waive their inspection contingency in order to gain an edge over the competition.

The current housing market is a good example. After COVID-19 exacerbated the scarcity of affordable housing in the U.S., there are currently fewer homes on the market than there are buyers. In such an extreme seller’s market, any way to make your offer more appealing can quickly become a temptation, no matter how unwise.

Even in less competitive markets, some home buyers may be tempted to skip the home inspection to cut costs or speed up the process. A home inspection may take a few extra days or up to a week to schedule and complete—and then there’s the extra $300-$600 that a professional home inspection can cost on average.

But regardless of the reason, skipping a home inspection is almost never a good idea. Waiving the inspection contingency means taking on the financial risk for the condition of the property without knowing what condition the property is in in the first place.

A home inspector could identify potential issues that you wouldn’t have noticed on your own, such as:

  • Water damage or mold
  • Cracks in the foundation
  • Termite damage
  • Roof in need of replacement
  • Radon or carbon monoxide in the air
  • Faulty electrical wiring

Buying a new home “as-is” without knowing of any potential defects or safety hazards could be an expensive—or even dangerous—mistake in the long run. Buying a house is one of the biggest purchases most people ever make in their lifetime, so it’s best to know as much about the condition of your new home as possible. 

Ways to negotiate without skipping the inspection

In an extreme seller’s market like the one we’re facing right now, it’s understandable to feel the pressure to do whatever you can to get your offer noticed. But thankfully, there are a few other ways to stand out in a seller’s market without giving up the chance to find out as much as you can about your new home.

1. Waive the contingency, but still get an inspection

Waiving that contingency doesn’t stop you from having a home inspection; it just means you can’t use the inspection results to change the outcome of the real estate transaction.

In your purchase agreement, you could waive the inspection contingency, but reserve the right to have a home inspection. Ask for an informational inspection, meaning that you’ll be getting a professional inspection for your own information, not for the purposes of changing or negotiating the deal based on the results.

Or, some buyers are opting to get a pre-offer inspection instead of a traditional full inspection. In a pre-offer inspection, the home inspector conducts a review of the major components of the home, such as:

  • Foundation
  • Roof
  • Exterior
  • HVAC
  • Electrical work 
  • Plumbing

Another option is to include a home inspection addendum in your agreement stipulating that you’ll overlook issues found in the home inspection that are valued at less than a certain price (such as $1000 or $500). Or, you could agree that only certain deal-breaker issues will be considered, such as:

  • An unstable foundation
  • Mold
  • Harmful air quality

The inspection contingency gives you the option to back out of the deal or negotiate a lower purchase price if significant problems are found, so it’s still not optimal to give up that protection. But in a pinch, it’s better to get an inspection without a contingency than to skip the inspection altogether.  

2. Get pre-approved and fully underwritten, not just pre-qualified

For most buyers depending on financing for their home purchase, the usual home-search process involves getting a pre-qualification letter from a lender. This letter is not an official approval for a loan; instead, it simply states that the potential buyer is qualified to seek a loan based on a credit check. 

In other words, a pre-qualification letter merely gives an estimated loan amount, but it’s far from a sure thing.

That’s why serious buyers may want to get a pre-approval letter instead. This letter is a more thorough evaluation of the buyer’s financial situation, since it’s compiled based on the lender’s underwriting of the buyer’s tax return, pay history, and bank statements. 

When sellers are getting multiple offers on the same home, they’ll be impressed by buyers who can show in no uncertain terms not only that they’re serious about the purchase, but they’re in a good financial position to follow through. 

3. Offer more money

Finally, serious buyers in a competitive market have one more tactic up their sleeve: making an aggressive offer on the property. While the asking price is often considered the maximum amount serious buyers should offer, in a seller’s market, the asking price may be the minimum

Sellers also appreciate buyers who can offer a larger down payment on the transaction. More cash upfront is understandably more attractive to sellers, not to mention that it demonstrates that you have the financial means to close the deal. 

If your competitors are offering 3% down payments, consider raising your offer to a 10% down payment or more, if you can afford it. The prospect of more cash in hand can tip the seller’s decision in your favor.

Takeaway: Don’t waive your inspection contingency

The home-buying process can be tricky and stressful at the best of times. But in a seller’s market like the one we’re in now, it can feel like you’ll never get an offer accepted unless you bend over backwards to please the sellers.

While waiving the inspection contingency may tempt sellers to go with your offer, it probably isn’t a good idea. If possible, you should always try other tactics to make your offer more appealing without foregoing an inspection completely.

Giving up your right to change the final contract based on the home inspection results can put you at great financial risk if the property turns out to have issues best noticed and reported upon by a professional home inspector.