Current Market: Are you waiving inspections?

Question

I am not sure how other markets are but the Toledo, OH (or NW Ohio) market is soaring through the clouds. With very little inventory, investors are having to fight their way into properties. I have seen everything from higher Earnest money being put down, full price (Or exceeding listing price) etc. The biggest one that we have seen is, waiving the inspection contingencies.

Most sellers are happy to receive an offer waiving an inspection contingency. For that reason, desperate buyers are all too willing to forego an inspection if it will land them the home of their choice.

So I guess my question is, How are you handling lost bids on these properties and who do you feel might benefit from waiving the contingency? Are you being advised that foregoing an inspection might be the key to getting that house you want? Obviously buying a home without an inspection is a gamble. For a home known to need a complete makeover, it may be a small gamble. For someone exhausting their funds to buy a home that appears to be in move-in shape, it may be a big gamble. Because it is you, as the buyer, who takes this gamble.

I personally push for home inspections on properties that any of my clients want to purchase. I see a 50/50 chance that the buyer will decide to waive the inspection because they really want the property however, I have seen the same flip of the coin where a property is in great shape and we are good to go, and others are complete "hot messes" that need new roofs, basement sealing etc. Just curious how others are handling the current market with similar situations.

Joe Villeneuve · Answer

I would never waive the inspection...ever. I would rather not get the property than get one that I wish I hadn't.

Jacob Repreza · Answer

Yup we waive inspections on our offers in Cleveland and we just plan for the worst possible state and go based off of pictures. With that being said, between submitting the offer and getting a response, we're usually able to send our project manager out or one of our boots on the ground to go take more pictures and walk around so that we know what we're getting ourselves into. So it's not a formal inspection by any means but we do have people from our team walk the house and give us some basic feedback.

Julio Garcia · Answer

Its Hot over here too Mike (CA). Everything is flying off the shelf. Several of my realtor friends say there are multiple offers on properties, even multiple full cash above asking offers. For me, It's just understanding the supply and demand concept. I stick to my criteria, and waiving inspection is not something i'm willing to forgo.

Greg Powers · Answer

@Mike Mocek, my investor clients are skipping them. But for owner-occupiers I suggest including a clause stating that￼, “Without waiving the inspection contingency entirely, Buyers agree that inspections are for Buyers’ knowledge only and shall not be the basis for further negotiation on price.” That way you signal to the seller that you’re not going to nickel-and-dime them asking for a dozen repairs or big concessions; but if any major issues or any immediately-necessary repairs that you can’t handle financially are discovered, you can back out of the deal and get your deposit back. It’s a hybrid approach that seems to please both buyer and seller. And frankly, if any major issues come up—like mold, foundation issues, etc.—the seller is likely to address them for the buyer to keep them from walking. They’ll have to deal with them for the next buyer anyway, so why not keep the bird in hand?

Erin Dorsey Robinson · Answer

@Mike Mocek We are seeing the same things here in Cleveland. Properties are flying off the market because people are excited to get property into their hands at these low interest rates. This is driving some very high offers with minimal contingencies because there are usually multiple offers on nicer properties and sellers have their pick.For our part, we advise our buyers to ALWAYS get an inspection. The great thing about real estate is that when they have a system in place and parameters for their business strategies, investors can make a good return on a predictable basis. Going in blind with no inspection adds an element of risk that makes the outcome significantly less predictable. Some would argue that if the deal is good enough, the risk is worth it. But in this market where deals are frequently won in multiple offers at higher prices, think it's prudent to be patient and wait for a deal that doesn't require unreasonable risk in exchange for the expected return.

Will Gaston · Answer

@Mike Mocek Not unless I can afford the worst case scenario. I waived an inspection an offer in July 2019 on a quad that I bought for 215k that was worth 365k "as-is". That still worked out great even though I spent 200k on the remodel. But I think a newbie waiving an inspection is a horrendous idea. One of the best parts about a home inspection is the education. Inspections and the subsequent repairs, estimates, etc is wealth of knowledge.

Reece Iovine · Answer

Do a walkthrough with a contractor or pay for an inspector to walk the property with you during a walk through and point out anything major then when you make an offer waive inspection as you already have done the inspection. Have to get creative.

Steven Foster Wilson · Answer

@Mike Mocek even on our 10 day cash offers we are doing a contingency for walkthrough & inspection. Ive found most sellers don't care, but they are more worried about the $$$ or the number of days to close. Especially here in Columbus where its a strong sellers market.

Kevork Artinian · Answer

@Mike Mocek I'm closing on a property in kern County in southern California . I did not waive the inspection contingency. And waiving it would be a deal breaker for me. Hopefully cooler heads eventually prevail once things normalize

Mike Mocek · Answer

@Steve K. Absolutely loves your detail and information. I have a few clients that live in CO and they have discussed the market out there, it’s crazy!