To waive inspection or not?

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To waive inspection or not?

Joshua Van Every
Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes

Hey guys,

Yesterday I put my first offer in on a beautifully remodeled flip. Everything from the electrical, plumbing, roof, interior and exterior was brand new. I’m in Milwaukee and it was located in West Milwaukee/Southside area. My initial plan was to invest into multi-family units. But after evaluation and getting numbers back on expenses vs income, I’d cash flow about $500 on 5 bdr 2 bath.

My realtor said the offer we put in was very strong and gave the option to waive the inspection saying he had previously seen this happen on a property that was fairly new as well. However, I wasn’t comfortable taking the risk of waiving the inspection contingency and out of the 12 offers, we lost. My realtor was confident we would’ve won if I would’ve waived it but understood my concern. Someone suggested having a “basement expert” come in for a small cost and give the green light or to hold off and we didn’t find one in time.

Is this something common to waive inspection on properties that are in bid wars? If so, is there something I can do to analyze better myself? It seems like a crap shoot. Any experience or advice would be helpful!

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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
6y

No, you should never waive inspection, especially as a new investor. You can make your inspection contingency languate much more palatable however, by phrasing it like this:

Version 1 for new investors - Buyer agrees to limit their inspection repair requests to major electrical, plumbing, foundation, structural, and environmental issues.

Version 2 for savvy investors - Buyer agrees to limit their inspection repair requests to catastrophic electrical, plumbing, foundation, structural, and environmental issues.

Both versions give you leeway to define what is "major" or "catastrophic" so you always have an out, but it also shows the seller that you aren't going to tic-tack them with cosmetic repair requests.

No realtor should EVER suggest you waive inspection, even if it were a good idea. That creates a big liability on their end and their brokerage should something come up.

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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    No, you should never waive inspection, especially as a new investor. You can make your inspection contingency languate much more palatable however, by phrasing it like this:

    Version 1 for new investors - Buyer agrees to limit their inspection repair requests to major electrical, plumbing, foundation, structural, and environmental issues.

    Version 2 for savvy investors - Buyer agrees to limit their inspection repair requests to catastrophic electrical, plumbing, foundation, structural, and environmental issues.

    Both versions give you leeway to define what is "major" or "catastrophic" so you always have an out, but it also shows the seller that you aren't going to tic-tack them with cosmetic repair requests.

    No realtor should EVER suggest you waive inspection, even if it were a good idea. That creates a big liability on their end and their brokerage should something come up.

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  • Michael Belmore
    Rental Property Investor · MA · Member since 2020 · 98 posts · 77 votes
    6y

    Hi Josh, 

     I've had buyers waive an inspection but still get an inspection done for informational purposes only. That can give some piece of mind before closing. I'll just add a little clause in the offers and let the listing agent know. 

    Usually its the appraisal contingency I've seen have the most impact on sellers when waiving in a bidding war situations.  

    With 12 offers its hard to say waiving the inspection contingency would've won out.  Guess you'll see in a months time! 

    Good luck on your next one, 

    - Mike 

    2Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @Joshua Van Every:

    Hey guys,

    Yesterday I put my first offer in on a beautifully remodeled flip. Everything from the electrical, plumbing, roof, interior and exterior was brand new. I’m in Milwaukee and it was located in West Milwaukee/Southside area. My initial plan was to invest into multi-family units. But after evaluation and getting numbers back on expenses vs income, I’d cash flow about $500 on 5 bdr 2 bath.

    My realtor said the offer we put in was very strong and gave the option to waive the inspection saying he had previously seen this happen on a property that was fairly new as well. However, I wasn’t comfortable taking the risk of waiving the inspection contingency and out of the 12 offers, we lost. My realtor was confident we would’ve won if I would’ve waived it but understood my concern. Someone suggested having a “basement expert” come in for a small cost and give the green light or to hold off and we didn’t find one in time.

    Is this something common to waive inspection on properties that are in bid wars? If so, is there something I can do to analyze better myself? It seems like a crap shoot. Any experience or advice would be helpful!

    To follow up on what @Jonathan Greene mentioned:

    This is your first investment property. Gotta say, that's a lowlife of a real estate agent you've got there. Willing to take all kinds of crazy risks with your money.

    The people who buy properties with no inspection contingencies are long-service building professionals and home inspectors themselves. Or they're related to them, or have a special business arrangement to have them look over their properties. It's very much an experienced property-buyer strategy. I flipped my first property myself in 2006. I only make all-cash, no-contingency property offers like that under very specific conditions. I can't believe the agent looked at your kids and suggested you do that.

    5Reply
  • Kai Kopsch
    Real Estate Broker · Charlotte, NC · Member since 2016 · 569 posts · 351 votes
    6y

    @Joshua Van Every the responsibility of a Realtor is to protect his clients!?  Please don't wave inspections if you're, not 100% sure its the best thing todo. 

    0Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Jonathan Greene that’s helpful to know moving forward. Thanks for your response!

    1Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Michael Belmore thank you, appreciate your perspective.

    0Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Jim K. I hear you. He knows the better decision was made. - thanks for the feedback

    0Reply
  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    My experienced investor clients put in offers that are as-is without inspections all the time, but they are savvy and risk tolerant.  The houses are also distressed so they know they are doing a full renovation anyway.

    For my retail clients, or buy-and-hold investors purchasing a retail home which sounds like the case with the OP, one strategy we will use is to offer to purchase As-Is with inspections and the right to terminate within 7 days.  This protects the buyer from getting in over their head, and also gives assurance to the seller that there won't be a nit-picky repair request.  This has won offers for my clients even when their price wasn't the highest.

    As for whether or not your agent acted ethically, thats hard to say without more context.  If he fully explained to you the risks of offering as-is without inspections, and you are a competent individual who understands that risk, then I don't think he necessarily did anything wrong.  That said, I think he was out of line by saying that if you had followed his advise you would have definitely gotten the deal.

    1Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    @Michael Belmore you want to watch out for those buyers though, the ones that will say they are doing it for "informational purposes" only and then they come back and ask you to ask for 10k in repairs. That can crumple your relationship with other agents even when you had a good faith belief that your client was going to keep to their promise. I have also used the language:

    "Inspections are for informational purposes only, however, if the buyer finds a catastrophic electrical, plumbing, foundation, structural, or environmental issue, they reserve the right to see if the seller wishes to address or negotiate the issue."

    This leaves the onus on the seller to agree to negotiate or not, but also gives the buyer an out for a "catastrophic" issue like major asbestos, mold, oil tank spill, faulty foundation, etc.

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  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    6y

    In some markets where its ultra competitive waiving the inspection will make your offer stand out. Just know your risk and factor it all in.

    2Reply
  • Randall Weatherall
    Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes
    6y

    I'm agreeing with a lot of the points above, but to simplify:

    Your Agent advising you not to get one is abnormal and when taken at face value, is a concern.  A decent Agent (and I'm not even talking about a rockstar here) would have talked over with you about how important it is to not only get the inspections done if you want to BUT ALSO how to present the impact of those inspections on the contract, which is essentially what everyone else is saying.

    That said, I find a lot of the times with that many offers in my area, initially Sellers will take the highest price nearly every time.  Then, also nearly every time, that contract falls through when the Buyer wantonly asks for a huge haircut, takes the Seller off-guard and everyone gets mad and cancels.  The first contract hardly ever goes through, so you and your Agent need to be bothering the hell out of this other Agent and Seller to make sure you're the back-up offer. 

    4Reply
  • Michael Belmore
    Rental Property Investor · MA · Member since 2020 · 98 posts · 77 votes
    6y

    @Joshua Van Every For sure, and we have other clauses to protect buyer in case something catastrophic were to come up. That clause is good thanks but at that point your better off just keeping the inspection clause in there. 

    0Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    6y

    @Joshua Van Every, I've been investing for more than 20 years, and I get an inspection every single time. If waiving inspection is what gets me the property, I don't want that property.

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    6Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Mindy Jensen I couldn’t agree any more!

    1Reply
  • Ben Haab
    Member since 2017 · 36 posts · 24 votes
    6y

    Disagree with the majority of the responses. Yes, I agree that a first time buyer/early investor should get inspections.

    BUT, having dealt with inspectors repeatedly their expertise varies greatly and buyers put too much trust on them.  If you're an investor and have a good relationship with a general contractor why not have them perform the inspection?

    2 weeks ago received an inspection on a house I'm selling stating that the garage door opener doesn't work and should be replaced or fixed.  The picture in the inspection report shows the opener wasn't plugged in.  On my first purchase (personal home) inspector went to the water heater and it wasn't lit and inspector didn't even try to light it, so he just checked the box as 'needs addressed' and moved on.

    The only other time I had an inspection on a purchase: inspector noted a few missing shingles with no more comments other than missing.  Had my contractor come out after I purchased.  Within 5 minutes he said roofer used too short of nails (multiple layers of shingles) and to expect continued problems with the roof.  If a contractor can see it quickly, but inspector cannot what good is an inspector. 

    Also, if you're realtor cannot pick out major concerns like an inspector can then find a different realtor.

    0Reply
  • Kody Crouch
    Investor · San Mateo · Member since 2015 · 14 posts · 16 votes
    6y

    Wouldn't it be nice if the seller's did inspections up front to save everybody the trouble of thinking about this? That's how most homes are sold in the Bay Area, and every nice house has at least 3-4 offers over list price, some of the cash, and none of them with any contingencies.

    However, you should absolutely always DO inspections. And even more, you should back out if they don't meet your requirements.

    That said, there is a situation where you could waive inspections, ONLY if you must.   (EDIT: I want to emphasize that I don't think this is a good thing to do as a habit or to be sneaky. But it is an option that most people overlook.)

    If you are going to have a finance contingency anyway, you can waive the inspection. If the inspection makes you want out of the deal, just let your lender know you won't be completing the application, and then let the seller know you will be unable to meet the financing requirements, so that they can move on quickly. 

    The down side in this case is you lose the ability to negotiate the price after inspections.

    2Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    @Joshua Van Every

    If it was a flip, I’d be more inclined to do an inspection than in a run down dump. We all know how some flippers work...

    1Reply
  • Stephen KeigheryBusiness Member
    Rental Property Investor · New Orleans, LA · Member since 2018 · 716 posts · 555 votes
    6y

    @Joshua Van Every do not waive the inspection. You could make the period shorter if you are confident that you can get a proper inspection executed in that time. Just make sure you get an inspection so a bad buy doesn't set back your investing career.

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  • Kevin Zolea
    Rental Property Investor · Collingswood, NJ · Member since 2016 · 282 posts · 116 votes
    6y

    @Joshua Van Every I wouldn’t. I just had my first offer accepted and went to the inspection.. Man did I learn so much! If I hadn’t done that, I wouldn’t have known all the issues and potential deal breakers that came with the property.

    1Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Joshua Van Every

    I conduct my own inspections, but it is usually after the offer is accepted.  The market is fast so putting offers in quickly is important.  It takes to really analyze a property.  I suppose when I look at a property we could do the inspection at the same time.  Not sure if that violates anything.  The most critical things are roofs, attics, electrical panels, crawl spaces, basements and foundations

    Any brokers/agents think it’s ok to look and inspect at the same time if it’s a house I have interest in.

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    6y

    I really don't think waving the inspection clause cost you the deal. Inspection clauses are par for the course and it's quite rare for them to be dropped even on new deals. I would definitely not make a habit of dropping inspection clauses from your offers.

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    0Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Matt M. Absolutely and that’s what made me uneasy despite everything looking pleasing to the eye when I went. Can never be too sure.

    1Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Ben Haab definitely feel this perspective too. Think this is the lens my realtor was coming from. However, as mentioned it just wasn’t worth it for me to start off by taking so much risk when first starting out. Appreciate your insight.

    0Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Stephen Keighery absolutely. Thanks for chiming in!

    0Reply
  • Joshua Van Every
    OP
    Rental Property Investor · Milwaukee, WI · Member since 2020 · 17 posts · 7 votes
    6y

    @Kevin Zolea good point. Looking forward to the day I go on my first inspection. That said I’ve heard some good points and differences in opinion on whether people use an inspector, general contractor, or an engineer. May be a whole other discussion. Thanks for sharing.

    1Reply
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