Why more buyers are dropping the inspection continency
One of the biggest drivers of fierce competition in the homebuying market right now is the historically low number of houses on the market. There were about 833,000 homes on the market in the U.S. in January, according to Zillow’s most recent monthly market report.
Two years ago, just before the pandemic started, that number was almost double that at 1.5 million.
The uptick in homebuyers during the pandemic, many of them older millennials, helped increase the price average of the average home 30% since January 2020, according to Zillow.
The demand is driving more and more people to make offers that are above list price and with as few contingencies as possible.
A ‘pre-buy inspection’ can help hedge your bets
Here’s how Malone’s “pre-buy inspection” hack worked with a recent client: He and the client hired a home inspector for $350, and when Malone first showed his client the house, the inspector came with them and gave them a rundown of how stuff looked.
It “enabled us to know what we were buying, which allowed us to take off the inspection contingency,” Malone says, while “still hedging our bets.”
Video by Richard Washington
Malone and his client hired someone who inspects homes for a living, but a general contractor could get you the same result, he says. In a crowded bidding war, a strategy like that could be what takes your offer to the final round.
“I know of a house in my neighborhood that had seven offers. Four of them removed the inspection contingency. That’s unheard of,” Malone says.
So now, he’s giving some of his more eager clients some new advice. “What I say is, ‘Never skip the inspection. But if you really want to buy this house, then you have to skip it.'”
Removing the inspection contingency in a normal market is just insane. You’re asking to buy a house without knowing what you’re buying.
Real estate agent in Birmingham, Ala.
A pre-buy inspection can be great but ‘hard to put together’
On paper, the idea of the pre-buy inspection sounds like a great idea that solves a big problem, but in practice, it can be difficult to pull off, says Joshua Blumen, an attorney who specializes in real estate transactions in Massachusetts and Rhode Island.
Here are three key reasons it could be challenging:
- It’s hard to hire a contractor for this work. “Trying to get a contractor to show up” is hard, Blumen says. Contractors are in high demand right now and may not have time to tour homes with you.
- Your lender might require a formal inspection. Some banks won’t approve loans unless there’s an inspection or an appraisal, Blumen points out.
- The seller nixes your tag-along. “In this market, sellers are savvy,” Blumen says, and they’re scrutinizing buyers and their offers very carefully. If they sense you’re removing a formal inspection but still angling to do a pre-buy walkthrough, they may pass on your offer, he says.
Even if you can get an inspector, contractor, or handyman to do a walkthrough with you, it may not be in time to make a competitive offer. Houses are selling quickly, and buyers need to see houses quickly and be prepared to make an offer on the spot in order to stand a chance, Blumen says.
“You may be competing with several other parties for what could be a very limited time slot,” he adds. When buyers are trying to get their own contractor or inspector on site that fast, it’s “hard to put together.”
Video by Mariam Abdallah
Skipping the inspection doesn’t ensure you’ll win, either. Malone’s client who brought his own home inspector to the house tour lost that bid.
“We went $15,000 over asking. We took off the inspection contingency. And yet we still lost because somebody offered $10,000 more than us,” Malone says. “I have seen buyers get very discouraged and talk about giving up and coming back in a year, and my answer is, ‘Next year is going to be the same, if not worse.'”
The article “Waiving an Inspection to Buy a Home Can Be ‘Insane,’ Real Estate Agent Says, But This Hack Can Help, If You Pull It Off″ was originally published on Grow (CNBC + Acorns).