An inspector’s $0.02 on how “win” in today’s market
I recently read an article in which a real estate agent advised buyers to forgo an inspection if they wanted to have any chance at “winning” in this current real estate market. While she might have been right, I think this is terrible (if not negligent) advice. I often hear about homes selling in less than a day with 40+ offers and going for tens of thousands over the list price. With inventory being historically low I cannot imagine how difficult it must be to get an offer accepted and go under contract on a home right now. After weeks or months of getting outbid, watching someone else beat you out for your dream house I can imagine a buyer wanting to do whatever it takes to “win.” But please, waving the inspection is just not the answer. You do not want to take a dangerous risk on your largest investment that also happens to be your family’s home. Paying thousands to repair a damaged sewer line, remediate mold, replace a damaged roof etc. can just make life miserable.
Look, I recognize my bias - as an inspector I obviously benefit from people paying for an inspection. However, I do not benefit nearly as much as my clients. According to a recent study, home buyers save an average of $14,000 as a result of an inspection. Admittedly that number seems high but I recently had a client whose agent was able to negotiate a staggering $100,000 price decline as a result of the inspection (FYI find a realtor like this guy!). While saving $100k is extremely rare, I share this example to demonstrate that there are likely significant repair costs you cannot account for unless you get an inspection (not to mention safety concerns). I could fill this blog with anecdotes of the crazy defects I find day in and day out that, if left unknown, would have end up costing my clients thousands. If you want to read about those stories feel free to Google them because they are plenty. My point is this - if you do not get an inspection it is statistically likely you will be paying thousands for unforeseen home repairs (on top of the thousands of dollars you already paid over asking price). It just is not worth it.
As an inspector I am a professional who is hired as an unbiased party to determine and report the condition of a home in order to help clients move forward with confidence. Without an inspection I do not see how you can move forward confidently with the purchase of a home.
An argument I recently heard is that if buyers are willing to offer thousands over the asking price in today’s market, they are also likely to be fine taking on thousands of dollars in unknown repairs. While I disagree with this approach I do understand the argument. However, if this is true it is all the more reason for sellers and realtors to want an inspection to be done. Eventually when the unknown repairs present themselves someone will need to pay for them. In today’s world that means a lawsuit. The unfortunate reality for home inspectors is that a large part of our role is taking on liability for damages to properties (most of us carry heavy insurance policies for this reason). If there is no inspector to sue then claims will be filed against sellers and real estate agents who likely did not notice that the condensate drain was terminating in the crawl space causing mold and foundation damage etc.
So what then should buyers, sellers, and realtors do? I see a few options:
One option is to make an offer “as is” but still have an inspection done. While you will not be able to negotiate, you will at least be aware of the condition of the huge investment you are about to make. This option at least allows buyers to create a budget for repairs or, worst-case scenario, choose to back out if a home has an issue(s) you just cannot reconcile. It is disappointing for everyone involved if a buyer has to back-out after an inspection (see my previous blog post for more on this). However, getting an inspection with an “as is” offer is a way to ensure due diligence and possibly avoid incurring thousands of dollars in unexpected repairs.
I really do not like the above option because it includes a risk that a deal may fall through after inspection. A much better option is to look for a home that has already been inspected. I still do not understand why pre-listing inspections are not simply the norm. When a home has been inspected prior to being put on the market it benefits everyone involved (buyer, seller, realtors, lender, inspector). A realtor recently told me there are more deals falling through right now in this insane seller’s market than during a normal market. Why? Because buyers are making “as is” offers thinking it’s the only way they stand a chance. Then, they have an inspection done and discover the true condition of a home only to realize that perhaps they do not really want the house “as is.” At this point there is a massive amount of pressure for a buyer and their agent to make a huge decision (and often in a very short period of time). Knowing the condition of a home up front almost completely eliminates the possibility of unknown issues throwing a painful, expensive, wrench in a deal after terms have already been agreed upon.
A “5-Point” inspection may be a more attractive option for a seller in today’s market. A 5-point was initially designed for investors who knew a property needed a lot of work and just wanted to know about the “bare bones.” A 5-Point inspection costs less and is designed to provide a less detailed assessment, focusing only on the 5 major systems of a home: roof, electrical, plumbing, structural, and HVAC.
I know there must be other options and ideas to creatively solve problems in this crazy market. I do not pretend to be a real estate expert. Realtors and investors are much more creative and innovative when it comes to finding solutions to these types of complex challenges. If you have an idea how to help home buyers or sellers “win” right now I’d love to hear it (as long as it does not involve waiving the inspection)!