Consumers looking to buy a home might improve their chances by waiving the inspection contingency

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A recent analysis shows positive results, but there are risks to be weighed against winning a bidding war

National real estate broker Redfin has analyzed its sales for June and found an interesting trend. Nearly 20 percent of its client’s winning offers waived the home inspection contingency.

In many housing markets, the competition for homes is fierce. The most attractive properties tend to draw multiple offers, meaning many shoppers who would like to buy the house lose out.

Redfin reports that its clients have increased their flexibility when it comes to contingencies in contracts, particularly the inspection contingency. Sellers sometimes worry that inspections will turn up flaws that they’ll be required to repair in order for the sale to go through. An offer without that contingency may look more attractive.

Redfin says its clients also waived the appraisal contingency with similar success last month. Both have proved to be winning strategies as buyers compete for homes, but both carry some risk for would-be buyers.

Risks to consider

The inspection contingency allows a buyer to walk away from the deal without penalty or request repairs if they find an issue during the inspection. If that contingency is waived, the buyer is taking a chance that there are no issues with the property that they would have to pay to resolve after settlement.

The appraisal contingency allows the buyer to cancel the contract or renegotiate the price if the appraisal is lower than the agreed-upon sale price. A mortgage company will insist on there being an appraisal if the amount is less than the sale price. But by waiving that contingency, the buyer would have to put more money down.

Redfin says buyers are taking on these risks because the market has become so competitive and many homes now receive multiple offers. They’ve also found that sellers don’t always accept the deal that offers the most money.

Lindsay Katz, a Redfin agent in Los Angeles, recently sold a home to a buyer who won out over 11 other bidders by waiving the appraisal and inspection contingencies and expediting the closing process.

"The $770,000 winning offer wasn't even the highest bid," Katz said. "We could've gotten another $30,000 for the house, but we opted to take the safe bet over the highest offer because there was so much uncertainty due to the pandemic."

Three factors affecting the market

More than half the sales Redfin handled in June had multiple offers, a situation created by three significant market forces. The coronavirus (COVID-19) pandemic is largely responsible for two of them.

After sheltering in place for two months, many renters decided they wanted to buy a home with more space. Because nearly everyone was working from home, proximity to the workplace was no longer a major factor. That created a sudden surge of buyers.

However, the supply of available homes continued to shrink during the pandemic. Many people who were thinking about selling their home have delayed putting it on the market, so the pace of homebuilding has remained sluggish.

Finally, mortgage rates have fallen to record lows, making home buying more attractive, especially when compared to renting. In June and early July, the average rate on a 30-year fixed-rate mortgage hit a number of successive lows as it approached 3 percent.

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