You would never think of purchasing a house without doing a home inspection, right? An inspection contingency is designed to protect buyers from issues that aren’t immediately obvious.
Or, so they say.
And an inspection gives you, as the buyer, adequate time to, well… inspect the property with a professional.
But what if I told you that’s really not the point of a home inspection at all?
I’ve purchased over 15 houses and only one of my offers included an inspection contingency.
That may seem shocking, but there are very strong reasons to waive your home inspection.
I’m going to tell you exactly when it makes sense to include an inspection contingency and when you might consider waiving it.
But first, let’s understand the true purpose of an inspection.
The Real Purpose Of A Home Inspection
A home inspection is a negotiation tool.
I will die on that hill.
Yes, it can help educate a buyer about a house and what might need to be repaired. But at the end of the day, a home inspection report is used to negotiate a lower purchase price or completed repairs before closing.
Nobody does an inspection AFTER they purchase a house, right?
Recognizing an inspection is primarily a negotiation tool will help us understand when it makes sense to do one and when it’s advantageous to waive it.
When You Should Include An Inspection Contingency
I don’t hate home inspections. If you can get an offer accepted with an inspection contingency included you absolutely should.
There are really three instances where it makes the most sense to try and make sure you do an inspection.
Situation #1: When You Can Actually Negotiate
The obvious situation here is when you’re confident you’re going to be able to negotiate. Remember, ultimately a home inspection is simply leverage.
You want to find things “wrong” with the home that you can point to and ask for some form of compensation.
A less desirable property or market environments that favor buyers over sellers are great times to make offers with inspection contingencies.
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For example, when my wife and I relocated from the San Francisco Bay Area to Troy, Michigan we still found ourselves in a competitive market. But it wasn’t so competitive that we felt the need to waive our inspection contingency.
We did offer more than the asking price and waived our financing contingency though.
Ultimately, the inspection identified a bunch of small items, and the sellers were happy to make these corrections or give us credits for them.
We ended up getting a fantastic house, beating the competition, and still having a bit of negotiation room after an inspection.
Situation #2: If You Know VERY Little About Home Ownership
First time home buyers, generally speaking, don’t have much knowledge when it comes to homeownership.
It’s intimidating buying your first home. And when you’re walking through it, the last things on your mind are all the little details that could actually be issues.
You aren’t walking the house with a critical eye.
When my wife and I moved out of San Francisco proper to Walnut Creek we knew next to nothing about owning a home.
As a result, we wanted to make sure we were protecting ourselves as much as possible. Every offer we made included an inspection contingency.
Ultimately, we decided to waive our inspection contingency (more on that below) but we could have just as well decided to adjust our expectations and keep it.
Maybe we would have had better luck with a hybrid inspection contingency that I talk about later.
Situation #3: New Construction
If you’re purchasing a new construction home I would absolutely do an inspection.
In fact, this might be the best situation to really leverage a home inspection.
It’s counterintuitive, right?
New construction means everything is brand new. It should be in perfect working order!
Not so much.
Builders often take short cuts, do poor work, and rush things just to get projects done quickly. Check out this video from a home inspector that posts a lot of new construction inspection fails:
I have seen a few disconnected, broken or majorly leaking drain pipes under showers on inspection reports
— Julie Chang (@JulieChangRE) January 30, 2024
Never good when the general home inspector or plumber come out from under the house soaking wet lol
But I’m gonna guess this is slab if it’s new construction pic.twitter.com/VLaxdjqrOd
Yikes!
New construction also doesn’t tend to be super competitive. You’re often able to negotiate pretty heavily with the builder.
Take advantage and use the home inspection to get a rate buy down, cheaper price, or something else.
When To Potentially Waive Your Inspection Contingency
Now that we understand when it makes sense to offer on a home with an inspection contingency, you’re probably already figuring out when it may be advantageous to waive it.
That said, it’s worth noting that if you are not comfortable waiving inspection, don’t do it! Ultimately, you must do what’s right for you and everyone has different risk tolerance.
But there are three situations when it likely makes sense to waive your inspection.
Situation #1: Highly Competitive Markets Or Deals
Earlier I talked about my wife and I purchasing our first home in Walnut Creek. The market was insanely competitive and while we were making our best effort to stand out, it just wasn’t working.
We were making strong offers, but every single one included an inspection contingency.
And none of our offers were accepted.
We tried everything from overbidding to waiving our appraisal.
Finally, we decided the only way we were going to get a house was to waive our inspection contingency as well.
It worked!
And guess what?
We never incurred any expensive repairs that we would have found during a home inspection.
Don’t get me wrong, we were definitely nervous about waiving our inspection contingency. But we were in a market that almost required us to do so if we wanted to be competitive.
It was either that or we had to readjust our expectations around the type of property we wanted to purchase (e.g. something less desirable).
Deals can be competitive due to current market conditions, your specific market, or simply because a certain home is extremely desirable.
The key is to understand your market and the home you’re targeting.
Situation #2: Off Market Deals
If you’re looking to purchase off market deals, no matter the type, it’s important to recognize that it’s highly unlikely you will be able to do a formal inspection.
Hopefully this isn’t a big deal or surprise.
If you’re doing off market stuff you should either know what you’re doing or working with a team that does.
We buy a lot of off market deals and never do third party inspections. But we have our team go through each property and assess the condition of major items like foundation, roof, and mechanicals.
If you’re looking to invest out of state and work with our team, take a look at what we do.
Situation #3: Experienced Investors Doing Rehabs
And if you know what you’re doing and purchasing properties that require rehab anyway, you really don’t need to worry about all the minor repairs and fixes. Those will be addressed during the rehab.
Experienced investors that are flipping or doing BRRRR’s aren’t as concerned with inspections because they know they’ll be uncovering all the issues during the renovation.
In fact, here’s a duplex unit I walked a few days ago while I was in Detroit. I went through both units, got into the basement, and up into the attic to assess all the big ticket items.
I was also taking note of the cosmetic things that we’d need to do:
Walked this duplex yesterday. Needs:
— Travis Biziorek (@TravisBiziorek) February 6, 2024
✅ Full cedar shake roof tear off + replacement
✅ MAJOR of clean out
✅ New windows (nearly 40 of 'em!)
✅ Lots of cosmetics
What do you think? Want to see vid of unit #2 tomorrow? pic.twitter.com/mgI7RgTzUm
This gives me a great idea on general costs for major capex improvements. Then it’s easy to include the costs of everything else and plan for a little padding for unknowns.
Once you’ve done this a couple times it gets much easier and more comfortable.
A Hybrid Approach To Home Inspection Contingencies
Finally, there’s one approach to the inspection contingency that I experienced recently and really liked.
When we sold our home in Troy we had multiple offers, most well over ask. Some of the offers had waived the inspection contingency.
But the highest offer did not fully waive their inspection.
Instead, they stated that they wanted an inspection but would NOT ask for any repairs on any one item unless the cost of repair exceeded $3,000.
Smart!
I’ve never seen this approach and, to be honest, have never thought of it. It’s a fantastic way to show that you’re serious about buying and not looking to negotiate on small items.
As a seller, this gave us a lot of confidence in the buyer. It also helped that they’d waived their appraisal contingency and had a 40% down payment.
So if you find yourself in a competitive market and you’re looking for ways to stand out without giving up your inspection contingency, consider this hybrid approach.
Other than that, as a first time home buyer, only waive your inspection contingency if you feel like you must. That means you’re both comfortable enough doing it and not willing to adjust your expectations.
As a serious investor, expect to waive your inspection contingency a lot. It’s generally required if you want to secure the best possible deals.
And if you know what you’re doing (or working with someone who does) and are smart about your numbers, waiving your inspection shouldn’t be a big deal.