An Offer Without Inspection Contingency.. This can't be normal!
Jason JamesPro Member
Rental Property Investor · Hillsboro, OR · Member since 2018 · 117 posts · 64 votesI'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.
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.
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.
On a few occasions, yes. But this was only after having a trusted broker in place who could do a quick walk-through first, or having inside information from a property manager that I trust. It's not something I would recommend for someone who is new to the game, and unless you're getting a phenomenal deal that is just too hard to pass up I would not recommend it. If you're buying your first or second property, you should go see it in person. And don't be quick to trust a broker or property manager (or anyone else for that matter)... only give that full trust after you have an established relationship and have done business together successfully for a while.
Very good thread and responses!
The most successful investors i've talked to make offers that are bold, No- contingency, close in 10 days or less.
To be blunt, it takes serious balls IMO, but doesn't almost everything in life?
I've had instances where it was obvious the buyer used the inspection contingency as a way to get the property under contract only to use it as the negotiating tool to drive the price down. My last sale, I had 11 showings and 3 offers on the first day and took the offer at $12,000 over asking price. They did the inspection. they brought in a chimney inspection company who said the chimneys were unsafe and needed a lot of work- buyer said they would take $12,000 discount in lieu of the work They also had another item relative to the garage and they would take $8,000 and do the work- I'm a GC and fixed the small issue on the garage with my crew in a 1/2 day ($500 of labor and $200 in materials). On the chimney, the chimney inspection company offered to do the work for me for $8500 which I knew was a rip off. I brought in a company that builds fireplaces and repairs them professionally. I explained what the chimney inspection company said the issue was- he asked if it was a specific popular chimney inspection companies- I said yes it was, he then said, I bet they offered to fix it for $8,500, right? I asked how he knew, he said it's essentially a scam/rip off that he's heard about numerous times and sometimes the home inspector is in on it and gets a kick back. I hired him to come in- he did a cleaning, a small fix for $375 and signed off that is was clean and safe. Learned a lesson but it cost me 10 days off the market.
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?
Hi Jason,
No. I have someone from my team see the interior for me. The information will either confirm or disprove my hypothesis. Prior to sending my team member with my realtor to see the house, I already know everything about it and I am about 98% sure I want to place an offer. But sometimes there are things not shown on the photos online which changes my decision.
That's the mindset you have to have and the level of preparation. I am not wasting my time or my agent's unless I really want it. When I hear people submitting a bunch of low offers like 50 to get 1 deal to me that is such a waste of time. All that time and energy to put in a low probability play. Now if you put in stong offers and lose out, well that's just the nature of the market right now. Sometimes it just wasn't meant to be and regardless of your offer someone just wanted more than you.
OP nailed it with this statement: "...this strategy will vary based on experience, REI knowledge, resources, and potential ROI, but this is a high risk strategy...". I couldn't agree more. This strategy will work for some and bankrupt others.
If you're using a lender it's a non-starter because they will almost always require an inspection. So seeing as waiving inspection is a strategy which basically only cash buyers can employ, and a high percentage of cash buyers are well capitalized experienced investors, I'd say it's not all that common for new investors on a tight budget and that's definitely a good thing.
I wouldn't recommend it for anyone who can't walk through a property and assess it's overall condition as well as come up with a ballpark rehab budget, nor anyone who would be financially ruined if/when there is a major issue hiding such as a partially-collapsed sewer line that needs an immediate $25k to repair. The sewer line is just one example of MANY things that even the most experienced among us will not be able to see without an inspection: electrical, structural, mechanical issues that are impossible to see during a walk through could cost a buyer a LOT of money.
If you're a new investor, one of the smartest things you can do is to become best friends with a great inspector. Be present for the entire inspection process and follow them around watching everything they do and asking questions to learn everything you can. The knowledge you gain will be worth a lot more than the couple hundred you pay for the inspection and will probably save your butt at some point.
I have a background in the trades, property management, restoration work, new construction, completed many transactions, self managed 20 units when I was getting started, longtime rental property and home owner etc. so I probably know more than most about buildings but I still rely on inspections in order to see the true condition of a property because you can only see so much just walking through, plus sellers lie and try to hide things.
I haven't had trouble getting offers accepted (there are other ways to strengthen an offer) and I have used inspection findings to renegotiate to the tune of tens of thousands so I'm glad I had them done. I have only waived inspection once on an off-market deal from a family friend.
Just like it's important not to buy a property with a clouded title, it's critical not to get in over your head with repairs. Many new investors soon find out what they thought was a good investment is actually a giant money pit and a simple $300 inspection may have saved them from great financial hardship. That said, even a quality inspection won't find everything and you should always have adequate reserves when buying a property anyway.
I would only recommend waiving inspection if all or most of the following is true:
1) The price is right and the deal is good enough that even if the building has major mechanical/structural/physical obsolescence issues it's still a good deal (and you have the money available to make the necessary repairs)
2) You're planning a major rehab anyway, specialize in this type of property, have a lot of experience and have padding in your rehab budget for unexpected issues
3) You have deep pockets, just really want the property and can afford to take a big hit
4) You already know the property and it's potential issues because you live down the block, know the property well, know and trust the owner/manager/tenants, used to live there, worked on the property as a tradesperson, have solid inside knowledge etc. and have money to make the unexpected necessary repairs
5) You like rolling the dice and have money to make the unexpected necessary repairs
6) You're a savant in all the trades and can see through walls and dirt as well as predict the future and have money to make the unexpected necessary repairs
7) you have money to make the unexpected necessary repairs
@Jason James
If you are making offers after looking at a property it might be a good practice to pay a contractor a couple bucks to do walk through with you if you feel house is in the location and price point you are targeting. He or she can give you suggestions and their professional opinion how to move forward.
Another option is to list inspection for informational purposes only. This let’s seller know you want inspection but won’t affect the agreed price.
I lived in CA during the market run up and moved to Texas before the crash. Don’t get in the mentality that you must buy because prices will just keep going up. Too many friends bought with the mindset that they will be priced out if they don’t buy now.
Buy smart and make sure you have reserves to cover any unforeseen issues during the rehab stage.
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.
Sellers would usually provide a pre-purchase inspection report if the home is over 15 years old..
Sadly a sellers market is the best time for a seller to hide any deficiencies as buyers will bid away on junk..
@Jason James I've done this but still had an out with funding contigency and I didn't care about inspection because I was going to do a full gut on the project. I'd say their strategy could be completely different and an inspection might truly not be necessary.
@Jason James: as has been said, this isn’t unusual in a hot market. It is, of course, risky, so you might want to consider more calm markets where inspections are still the norm. A lot of Cali investors are looking in Arizona.
@Alex Verdugo. Earnest Money Deposit
This is a good topic for newbies No pund intended..
I’ve been purchasing property for over 20 years I have never ordered a property inspection if I ever needed to check out a property I always used a contractor. Sellers have always been intimidated by home inspection that’s why it’s wise to take it off the table but that only works if you’re a CASH buyer. If financing is involved then the lender will always request the home inspection.
Best of Luck
@Jason James
In north jersey we use this all the time. If you want to get a house here you waive all contingencies. Because of my experience as a developer and most of the houses I buy are going to be taken down anyway, it doesn’t matter. As for oil tanks those can be costly and challenging if they are leaking as the soil conservation must get involved. If you are not experienced with oil tanks,which may not be prevalent In your state, I would sweep for one.
It depends on the situation. On properties bought out of state, I always get an inspection. On a recent buy in the still hot Bay Area, the property was bought without an inspection and a 10 day close all cash. You could tell there were a lot of serious buyers at the open house, some brought their contractors to estimate the build and some were contractors themselves, their trucks were parked outside. You needed your offer to stand out and to be creative to have a chance at this house.
I’m a GC hardly ever have an inspection anymore as I typically do a full Reno so i’m opening/ replacing most things anyway and have lots of experience at this so I know the tell signs of big issues. My best deals are things that look scary/ominous but are really easy fixes- luv garages that are titling, stucco that is bubbling, bathrooms that obviously are guts ect so less experienced people run away Or create such a big $ buffer that they aren’t competitive. I’ve had people come to me afterwards where i’ve made $60,000 with a $75,000 rehab on a $200,000 -$250,000 purchase asking how I could have paid so much not knowing my actual cost to rehab.
@James De Stefano
Please don't confuse experience and education with balls. Most serious investors have paid the price and know what to look for. We make decisions based on experience and information and hopefully not on balls and courage.
We are seeing it commonly in the southeast. In many cases, buyers will attempt to get an access agreement as part of their LOI. This allows them to access the property while negotiating contract particulars giving some form of physical diligence prior to their money being non-refundable.
@Jason James I buy and sell houses weekly without an inspection, . We do of course walk through the property But we never hire an inspection co, ?
If the buyer is confident in his assessment I don't see why you couldn't do that. Also an inspection period is often times used to tie up a property and further negotiate price down after inspections. This buyer obviously knows that and took this out of his offer to get the deal.
@James De Stefano
Please don't confuse experience and education with balls. Most serious investors have paid the price and know what to look for. We make decisions based on experience and information and hopefully not on balls and courage.
Well said, I agree. But I would say 90% or more of the population doesn't have the guts to make offers on rehab properties. Including many real estate agents.
I think it's a large part of the intrigue of investing, balancing risk vs. reward.
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.
Sellers would usually provide a pre-purchase inspection report if the home is over 15 years old..
Sadly a sellers market is the best time for a seller to hide any deficiencies as buyers will bid away on junk..
Some definitely do, which alleviates the risk. You're definitely right in a hot market like early 2017, I can only imagine the issues that weren't found
I have seen this in Sacramento and Stockton area, and usually is only done by savvy investors who know what a property is worth and can get a good sense of what it needs just by viewing the property themselves. For all you know, they were a contractor or took theirs with them when they viewed the home.
Plus, if the home is generally in decent shape, what could REALLY be wrong with it? AC goes out a year later? That's peanuts to get the right house for your family or investment portfolio. And Stockton is such a competitive market you're going to see Bay Area money thrown around like that. Ridiculously hard to compete against, no doubt.
@everyone definitely great information and conversations on the use of this strategy. This is much more NORMAL than I thought, and even more in a competitive market. Many of you have the experience, knowledge and skill set to use it to your advantage. Truly amazing and what I aspire to be in the future of my REI journey.
@Mindy Jensen excellent point , coming over the top to make it clear that this strategy is for experienced investors.
@Steve K. great detailed advice for new investors. i greatly appreciate your feedback and I will definitely keep the 7 points in mind before I use the No inspection Contingency as a tactic.
@Luciano A. great tip on bringing a contractor to initial walk through, to get their opinion.
@Jim K. Love the advice on investing in the winter months. I read the same thing in David Greene's Long Distance Real Estate Investing book and how he focuses on that time as well.
@Bruce Runn wow, and thanks for sharing your story.
@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
I don't think so. Essentially your purchasing the property as -is and that is why you are waiving the inspection. It increases your chance of winning the offer, but you assume any risk that may come with the property. If this is not correct someone please correct me.
It depends on the situation. On properties bought out of state, I always get an inspection. On a recent buy in the still hot Bay Area, the property was bought without an inspection and a 10 day close all cash. You could tell there were a lot of serious buyers at the open house, some brought their contractors to estimate the build and some were contractors themselves, their trucks were parked outside. You needed your offer to stand out and to be creative to have a chance at this house.
Do you think waving the inspection contingency is what made the difference versus you and the other potential buyers?
@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.
Great point. This was an OK deal in a desirable neighborhood . Duplex was going for 330K, and some comparable properties sold in the neighborhood for 360K a few months earlier. From the exterior the home was in decent shape. No interior photos or access to the property due to tenants living in the property. It hit MLS and was in contract within 8 or 9 hours.