Buying A Home? Don't Waive This Contingency

In home buying, as in all things, knowledge is power.

If you've been following the housing market these last few years, you know I'm not exaggerating when I say it's been wild. The buying frenzy of 2020 and 2021 was spurred by a combination of low interest rates and a desire to flee dense urban areas after the COVID-19 pandemic broke open in the U.S.

Unfortunately, this situation led to higher prices and lower inventory for anyone who had hopes to buy in 2022. And to add insult to injury, mortgage rates also more than doubled over the course of 2022. These conditions will likely persist well into 2023, making it a dodgy time to buy.

If you're still hoping to get on the property ladder sooner rather than later, I sympathize. At this point, you may be feeling desperate and willing to try anything to get an offer accepted, especially if you can't afford to pay cash for a home (and elevated prices and interest rates, plus the other drawbacks of paying cash, can make it a bad idea anyway). While some buyers waived certain contingencies in the process of buying a home these last few years in hopes of getting their offer accepted, waiving an inspection contingency (which would make it possible for you to terminate or renegotiate an offer on a home with known problems) is a terrible idea. Here's why.

You want to know what you're buying

A home inspection is your best shot of getting an honest assessment of the condition of a home, plain and simple. This is especially important since you're planning to make a large commitment in the form of thousands of dollars paid upfront (your down payment and closing costs) and an agreement to pay many thousands more over the course of your mortgage loan. A home inspection is also your opportunity as a buyer to step back and come down to Earth regarding your feelings on a home. It may have been love at first sight, but things can look different in the stark light of reality -- when you're looking at a broken furnace on the coldest day of winter or a leaky roof during a huge thunderstorm.

You can still buy a home with known issues

All of this is not to say that if you get your prospective dream home inspected and the inspector turns up problems with it, you must therefore terminate your contract. Quite the opposite is true, in fact. If the home has issues, you end up with a platform to negotiate from. You might be able to lower your offer to compensate for the money you'll have to put into fixing, say, that leaky roof. Or you can ask the seller to have the problems fixed.

Even if the issues your inspector uncovers are mild, you still want to know. Maybe they'll catch something that isn't a problem now, but could be in the future. Think of a home inspection as a doctor making a house call. You get a report on the "health" of your possible future home, and can therefore plan accordingly that in a few years, you will likely need a new hot water heater, for example. This way, you get to start putting money aside in your emergency home maintenance fund.

Other ways to get an offer accepted

If you're worried about getting your offer accepted in this market, there are other ways that don't involve waiving your inspection contingency. Getting a mortgage pre-approval letter from your lender shows you're a serious buyer with the finances to back up the offers you're making. You might also offer more than the asking price, if you can afford it. Buying a home is likely to be the most expensive purchase you'll ever make, so give yourself every chance of succeeding at homeownership -- including paying a fair price for a home and being prepared for all your potential costs down the line.