An Offer Without Inspection Contingency.. This can't be normal!

Buying & Selling Real Estate
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An Offer Without Inspection Contingency.. This can't be normal!

Jason JamesPro Member
Rental Property Investor · Hillsboro, OR · Member since 2018 · 117 posts · 64 votes

I'm in a fairly hot Multifamily market in Northern California. My agent and i just made really strong offer, over asking price with a 30 day close. We were beat out by the same offer, without a inspection contingency. I'm just curios has anyone ever made an offer like this in the past, or currently using this strategy? Id imagine this strategy will vary based on experience, REI knowledge, resources and potential ROI , but this is a high risk strategy in my opinion. I would love to get everyone's thoughts on how they used it and why.

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Don Gouge
Johnson City, TN · Member since 2017 · 209 posts · 367 votes
7y

Savvy sellers know that an inspection contingency is often a tactic used by buyers to lock up a property and really begin negotiating the price after the property is off the market. An offer with a no inspection contingency tells me that the buyer is strong, capable and will close at the contract price. All my offers have been made without inspection contingencies.

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  • Robert Matelski
    Rental Property Investor · Austin, TX · Member since 2018 · 214 posts · 270 votes
    7y

    I currently own 6 SFRs, 1 duplex, and 2 condos. I never had an inspection contingency on any of these purchase offers. If you are a serious buyer, and you are thorough in your physical analysis of the property, you can avoid the inspection, saving yourself $$$ and making your offer MUCH stronger in the process. Yes, it takes some knowledge to understand what to look for in doing your own "inspection" before you write the offer, but it really is not rocket science... in time, and with enough experience, any layperson (i.e. non-construction professional) can learn enough to do his or her own legwork upfront.

    3Reply
  • Jonathan W.
    Los Angeles, CA · Member since 2019 · 512 posts · 301 votes
    7y

    @Jason James @ everyone

    Do you still request repairs done? Or because your able to offer and get a lower price without one make it not worth it/pay for itself by not requesting repairs

    0Reply
  • Robert Matelski
    Rental Property Investor · Austin, TX · Member since 2018 · 214 posts · 270 votes
    7y
    Originally posted by @Jonathan W.:

    @Jason James @ everyone

    Do you still request repairs done? Or because your able to offer and get a lower price without one make it not worth it/pay for itself by not requesting repairs

    It depends on the circumstances, but usually I buy as-is and do not request any specific repairs. In some cases I will write my offer subject to the seller making the property POS (point of sale) compliant, meaning clearing any [usually petty] violations the city may have called out, in jurisdictions where POS is required at transfer (e.g. many suburbs of Cleveland).

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  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    An inspection ? What’s that ? I have never had one done besides my own walk through and the” newest “building I own is 95 years old . One thing I have learned lately is risk is relative ..What’s risky for some is not risky for others

    2Reply
  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
    7y

    We just bought a house with the same clause, I walked through the house able to see what is going on with a good deal of confidence.

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  • Joe Frank
    Member since 2019 · 24 posts · 7 votes
    7y

    @Alex Verdugo

    Earnest money deposit

    1Reply
  • John Hickey
    Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
    7y

    @Jason James I nearly always make offers with no inspection....

    But it can bite you hard. I done a good smith of deals and have some experience in construction and renovation but you can’t see everything every time.

    Example.

    I bought a House where the sewer was collapsed, inside and outside the house, the floor joists were on dirt and the whole first floor had to be redone...and a bunch of other stuff on top of that so on that one we didn’t make a lot of money...but it was buy and hold so it just pushes out the beak even.

    But I’ve also made money and gotten deals when there was multiple cash offers and I was the lower offer bc the combination of cash, quick close 25% deposit and no contingencies gets noticed.

    1Reply
  • Kody Foster
    Longview, TX · Member since 2017 · 26 posts · 17 votes
    7y

    @Jason James

    I always do an inspection. If anything it gives me and idea on rehab cost if there is any. Being competitive doesn’t always mean being risky. If you can live without it so be it. But I’ve never heard anyone saying “man, I wish I didn’t get that inspection”.

    2Reply
  • Alissa Engel
    Great Falls, MT · Member since 2017 · 97 posts · 172 votes
    7y

    @Jason James

    Just drove this as the seller in a very hot MT market (Bozeman).

    We knew it was a solid property and a hot market, and we weren’t willing to budge on price at all.

    We had a home inspection done ourselves. Offered it to buyers, but clearly stated that there would be no further negotiation beyond original offer.

    We received a full price offer without an inspection contingency at the first showing. Had many more, including 3 all cash and no inspection contingency, by the end of the first day on market.

    1Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    7y
    Originally posted by @Account Closed:

    The last property I purchased here in a very hot market. The sellers countered and wanted me to waive inspection in my offer or they would take the next offer down.

    What I ended up doing on that contract was keeping the inspection clause but stating that it would only be a reason to back out of the deal if there were $10k+ of damages discovered in the inspection.

    They accepted that counter as it still showed I was a very serious buyer and wasn’t going to nickel and dime them on small things or back out of the deal unless I really had to.

    I'm in a similar hot market, and when my buyers are making offers, we walk the property for a long time, looking at everything. Not a replacement for an inspection, but my current buyer is a flipper and so am I. When we write up the offer, we leave an inspection contingency in place, and tell them we're not there to nickel and dime the seller, but only to get a handle on the state of the house itself.

    Now the issue no one is bringing up - this is for EXPERIENCED investors. New investors - especially investors without a lot of money - should NOT be using this "no inspection" tactic to get a property. 

    Investing in real estate with very little money down, and not adequately prepared for unexpected repairs is a financial disaster waiting to happen.

    If you have to ask if you need an inspection, you NEED an inspection. (Not necessarily for the OP, just in general)

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  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    7y

    One thing to consider is to put an "as-is" clause in your offer. Which basically tells the seller that you are going to do an inspection, but that the inspection is for informational purposes only and you will not request any repairs be completed by the seller.

    This clause also gives you your full right to do an inspection during the neogitated timeframe and if issues arise that make you not want to proceed your purchase you can exercise your inspection contingency and back out with your earnest money being returned by the seller.

    This is usually a compromise for someone who wants to make their offer more aggressive in the sellers eyes, but is not comfortable (based on experience or condition of the property or both) to submit an offer with no inspection contingency.

    I agree with @Mindy Jensen.  If you are asking if you should include an inspection clause then you definitely need one.

    3Reply
  • Account Closed
    Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    @Jason James

    My first property was bought sight unseen (with the exception of looking at a few MLS photos) with no contingencies. Property was listed around 21K. I offered $26K since I knew the ARV would be 90K (it actually appraised for $100K). The way I saw it was that "buffer" would cover just about any unforeseen issues.

    For my second BRRRR I viewed the property as soon as I saw the listing as I knew there would be multiple offers. To sweeten the deal I told the seller I would purchase with cash with no contingencies and close within 1-2 weeks. There were other offers coming in, however I think the seller knew there were items that would be flagged during an inspection, so instead of having the headache of another buyer nickel and diming them after inspections, I made the process very easy for them. Paid $23K, put $8K in rehad and appraisal was $45K.

    1Reply
  • Don Gouge
    Johnson City, TN · Member since 2017 · 209 posts · 367 votes
    7y

    I think we are starting to see an abuse of the inspection contingency. I wonder if realtors just encourage buyers to lock up a property at full price and after they have so to speak gotten it off the market, then renegotiate from a point of huge advantage. 

    0Reply
  • Frank Maratta
    Rental Property Investor · CT · Member since 2019 · 105 posts · 68 votes
    7y

    @Mindy Jensen

    This was all very well put, I completely agree. Especially with that last paragraph

    I believe new investors should always have the inspection contingency in place. After you have done a couple rehabs, or if you have a solid background in construction you can start to waive the contingency if need be. If you have this sort of background really all you are paying an inspector for is TIME - you can find the exact same items that would come up during an inspection if you put 2-4 hours walking thru the property. Upon first glance, a lot of things get missed, so if I’m putting in multiple offers or if it’s just not feasible to spend an hour or two walking thru the property then I will add the inspection contingency.

    Sellers know that when someone puts an offer in with an inspection contingency, they can expect to possibly need to reduce the price after the inspection occurs. Or some of them just want the deal to close and don’t have time for a month and a half to go by. Some may be hiding some things that they know would come up in an inspection that a newer investor or home buyer may miss.

    When I do rehabs, I usually waive the inspection contingency. I look at the big ticket items - roof, siding, windows, boilers, electric (knob and tube?), foundation, and if I’m not gutting it all the way to the studs- I look at the walls- are we dealing with sheetrock or plaster?

    Keep in mind I have used the inspection contingency to get some great deals, my first two family I ever bought i went up against 15 other bids so offered 10k above asking but left the inspection contingency in place, I was then able to negotiate it down to asking price. I also had another 3 family I bought that was listed for 215k, had it under contract for 193k and then after the inspection, negotiated it down to 180k.

    It really depends on the deal, the amount of interest in the property, and your experience level. If you find a deal on the MLS and every one and their mother is going to be putting in an offer on it, my advice would be to offer more and leave the inspection contingency in place.

    Haven’t had a chance to read the whole thread but my advice is based on single or small multi family properties. Larger multi is an entirely different topic.

    2Reply
  • Sam Trentwood
    Rental Property Investor · Dallas, TX · Member since 2018 · 34 posts · 20 votes
    7y

    Inspection contingency is used often as a tool negotiate a lower price than accepted offer. I would accept a lower offer without contingencies, than an offer with contingencies.

    1Reply
  • Salvatore Galifi
    Member since 2019 · 3 posts · 0 votes
    7y

    In my market (Toronto), it has become more common to remove the inspection contingency, often in order to have an advantage in the case of multiple offers being placed on the property. Personally I have only used this tactic, when A) I was purchasing the home at enough of a discount that even in the event that I found further issues with the property, there would still be sufficient profit to make it a good deal and B) If it was a full rehab or even redevelopment and everything would have to be torn out/demolished anyways. 

    One strategy many investors use is to bring their inspector with them when they view the property so they can spot any major deficiencies before the offer is placed.

    0Reply
  • Connie Chan
    Investor · Member since 2017 · 239 posts · 149 votes
    7y
    @Mindy Jensen I love this idea of the $10k clause for damages. Very creative and gets to the heart of why you want the inspection. Will def try this next time I make an offer. Thank you for sharing it.
    0Reply
  • Jason JamesPro Member
    OP
    Rental Property Investor · Hillsboro, OR · Member since 2018 · 117 posts · 64 votes
    7y
    Originally posted by @Bill B.:

    How old a building?

    I’ve never had an inspection contingency on a Vegas property. They’re all less than 20 years old, stucco siding tile roof, no basement, solid dirt under them. I’ve walked through most of them before making an offer the same day, but not all.

    A hot water thermo coupler and a leaking toilet have been my worst finds. Maybe an irrigation leak. 

    If you can’t imagine a “problem” that would cost more than 1% of your offer and you’d be happy with a worst case 1% higher, eliminate the inspection. 

    Now if you’re looking at 80 year old houses with leaky/cracked basements to shifting soil, I can’t help you there. 

     This property was built in the late 70's. But neither I or the winning offer were able to tour the property due to tenants living in it.  The only pictures available were of the exterior (front yard and back yard). The 1% rule does make sense, but I'm more cautious because my intent is to house hack my next property. 

    0Reply
  • Jason JamesPro Member
    OP
    Rental Property Investor · Hillsboro, OR · Member since 2018 · 117 posts · 64 votes
    7y
    Originally posted by @Frank Wong:

    If you are in a competitive market you will need to go non-contingent to make your offer stand out and in many cases to level the playing field.  As a buyer competing with other buyers on a hot property.  You have to ask yourself.  If I was the seller what offer do I want?  

    Focus on that and you will have a better shot of getting your offer accepted.  You also need to understand your risk and the risk of the property waiving your contingencies.  To give you an idea on how I structure my own offer. If I find a property I want I go All-Cash 7 day close non-contingent.  I go for the kill.  

    Frank, I love the strategy, very aggressive. Are you taking this approach with properties that you've only seen the exterior? Also id imagine the focus here are for BRRRR's, and Fix / Flips correct?

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    I dont include inspection contingencies in my offers.  Its also very common in my market for people not to have them.

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  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    @Jason James One thing missing in this thread is that it has got to be a great deal!

    Lots if not most experienced investors will make aggressive cash, no inspection, quick close offers. It may even be asking price or over asking price, but it has got to be a great deal. I’m not out to overpay—or even pay market price. 

    1Reply
  • Jason JamesPro Member
    OP
    Rental Property Investor · Hillsboro, OR · Member since 2018 · 117 posts · 64 votes
    7y
    Originally posted by @Robert Matelski:

    I currently own 6 SFRs, 1 duplex, and 2 condos. I never had an inspection contingency on any of these purchase offers. If you are a serious buyer, and you are thorough in your physical analysis of the property, you can avoid the inspection, saving yourself $$$ and making your offer MUCH stronger in the process. Yes, it takes some knowledge to understand what to look for in doing your own "inspection" before you write the offer, but it really is not rocket science... in time, and with enough experience, any layperson (i.e. non-construction professional) can learn enough to do his or her own legwork upfront.

     Robert,

    just curious have you ever purchased one sight unseen? This would have been the case here, other than the exterior photos (Front yard / back yard) that were supplied on the MLS.

    0Reply
  • Stephen GallagherPro Member
    Real Estate Agent · Hillsboro, NH · Member since 2019 · 80 posts · 54 votes
    7y

    @Preston Quinn

    I am with you. I dont need a home inspector that took a 40 hour class, and doesn't understand how a GFCI works. My current house was a foreclosure I bought with a no home inspection clause. The bank still wanted there walk through of which they never conducted. I beat out two other bidders with this tactic.

    I will be using it with my next one as well. I have walked away from some potential deals due to asbestos, Mold, leaking roofs etc. I don't need anyone else to point those things out.

    0Reply
  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    7y

    @Jason James I usually offer without inspection but I generally know what to look for. One approach that is often taken in the Minneapolis market is for the seller to have an inspection done, address any real issues that come up, and then put the property on the market with the pre-listing inspection available to potential buyers. That makes the property that much more attractive and can take away some of the crap that some buyers pull by making an offer they know they won’t honor as written, planning to try to work the price down based on an inspection.

    1Reply
  • Michael Kiley
    Real Estate Agent · Cleveland, OH · Member since 2017 · 184 posts · 253 votes
    7y
    Originally posted by @Jason James:

    I'm in a fairly hot Multifamily market in Northern California. My agent and i just made really strong offer, over asking price with a 30 day close. We were beat out by the same offer, without a inspection contingency. I'm just curios has anyone ever made an offer like this in the past, or currently using this strategy? Id imagine this strategy will vary based on experience, REI knowledge, resources and potential ROI , but this is a high risk strategy in my opinion. I would love to get everyone's thoughts on how they used it and why.

    I never use an inspection contingency on any house I buy. As a builder, remodeler, and long-time investor, I've never met an inspector that knows more about how homes fail and what people do to cover up said failures. I wouldn't recommend skipping out on the inspection though unless you are experienced in that area. 

    2Reply
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