Should you waive your Inspection Contingency? | Housing Market 2021
My parents told me that I should get my own inspector, what do you think? Today, we are talking about the inspection contingency and, specifically, doing your due diligence on your house.
Inspection Contingency-- what is it?
I want to say something right off the bat: we are in an as-is market, a true as-is market. What does that mean here in the East Bay and generally in the Bay Area? It means that sellers spend thousands of dollars, and countless hours pulling together third-party experts to look at it, crawl all over it, and write up a report that says these are the things that are wrong with it along with all the documentation of the past work they did on the home during their ownership. Then ultimately, deliver that information to you, the buyer.
Now, what they’re doing is twofold – one, they’re giving you information so you know what you’re buying; two, effectively, they’re trying to take that stuff off the table from a negotiation standpoint and ask you to bake that into your offer.
But should you trust it?
It definitely begs that question. Is it something that you should take at face value and move forward with blind trust? Not necessarily. And that’s because not all inspectors are created equal. You need to think about three things. Specifically, the first is what was said/disclosed. Secondly, who said it. And thirdly, as a bonus, what wasn’t said.
Let’s go through those three individually.
1. What was disclosed
The first one is what was disclosed. Simply, it’s what the inspectors reported. Did they find dry rot in certain areas? Did they find termites? Is the plumbing outdated? Are the outlets reverse polarized? Where did they find issues? Did they find that the roof was leaking? Was the shower pan leaking into the crawlspace? Those are just some of the examples of stuff you got to figure out. It’s easy too. You just need to read those reports then find the issues and areas of concern.
An inspector’s report generally includes their opinion of all the major systems in your house– the HVAC, the electrical, and the plumbing, the foundation and roof, among others. This report will give you an assessment of all those systems, a rough idea of how old they are and how much service life they have left. So you can, generally speaking, have some confidence in those items, as well.
2. Who said it
Second, you then have to think about who said it? Who was the inspector? Are they new, or do they have 20 or 30 years of experience in the area that you’re buying? What is the reputation of the company they work for? That’s something your agent should know, but I suggest you also do a little bit of research on your own. Online reviews can be helpful here.
Once you have your inspector’s report, I highly recommend that you call your inspector directly. Their phone number is usually on the first page or two of their report. Talk to them about what they saw explicitly because they often use boilerplate language. If you hear it live from them, you might also get a slightly different story than what was written in black and white on the report.
So think about that as well but generally speaking, you need to know that these people have good reputations. Are they really lax or do they rip houses apart? Are their bids on market or do they come in 20% higher than the market average. As a result, the cost of fixing these issues could be much less than quoted in the discloser packet.
3. What Wasn't Disclosed
Lastly, you also have to find out what wasn’t disclosed or what wasn’t commented on. There are also times when the inspector will call you for additional reports.
For example, the chimney looks like it’s got some issues, it’s leaning a little bit, it’s got some crumbliness in the mortar, or you’ve got stucco siding, and you might need to do test hole report. But you don’t see those in the disclosure packet because the seller elected not to do that additional work or hire those people to come and look at those specific issues.
So if they’re calling for it, or if your agent is suggesting something, you need to make sure you look for that. These pieces of information are what will give you that whole picture of the property’s condition.
Now, once you’ve done your due diligence on whatever has been disclosed and maybe, not disclosed, you’ll have a couple of options. You can go and get your own opinion from an inspector or contractor to potentially walk through the house with you. There is nuance (and danger) there to talk to your agent about that one, but generally, that’s doable.
If there are some significant gaps in their disclosures like not performing additional reports, and you don’t have time before the offer date to make that happen, you can’t responsibly remove the inspection contingency. Unless, of course, you want to roll the dice and hope you’re not buying a lemon.
So, should you remove your inspection contingency?
Again, what a seller should be doing is trying to construct a narrative around the condition of the house as is that helps you buy it knowing what you’re buying and what you’re going to inherit. That way, you can bake it into your offer price. So make sure that you’re getting to that point comfortably.
However, if you’re not at all comfortable, don’t remove your inspection contingency. Yes, it will hurt your offer, but it beats the heak out of buying a lemon. Still, I can tell you from experience that if you write a non-contingent offer and you’re at all unsure about the condition of the house, you are probably going to inherit a big problem. If nothing else, you’re going to have a lot of stress during that first year or two.
A few last words
Do your due diligence and make sure you work with somebody who can answer the questions you need to make a good decision. Because at the end of the day, you always remove your contingencies to close the deal. It’s just a matter of when. What you happen to be doing is doing your diligence upfront in our market. And that requires that you move a lot faster than would otherwise be necessary for other markets. So it’s simply just an accelerated timeline in most cases.
Now, admittedly, there are times when people make bad decisions. For example, when removing the inspection contingency is not responsible but they do it anyway because they received bad advice. Don’t be that person.
Make sure you work with someone who has the resources and the knowledge to bring you the answers and help you turn over the rocks. Do the research yourself. Please don’t 100% rely on your agent or the contractor because they’re not you. They’re not going to have to live in that house after it closes; you are. You’re responsible. And if you do your diligence the right way, I promise you, you’ll put yourself in a better position, and ultimately, when you find the right house, you’ll be able to make a really strong offer.
I hope my blog on the inspection contingency has helped you.
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