In the last year, the housing market in the United States has basically become its own reality tv show. Sellers hold the top prize – a moderately priced house – and buyers are competing and putting everything on the line for a chance to win a whopping 1200 square feet to call their own.
In the past markets have fluctuated between buyers’ markets, when there is an abundance of housing and those houses can be purchased around asking price, and sellers’ markets, where there are less houses available and therefore the chances of getting into a bidding war increase. Though these ebbs and flows are somewhat expected, the state of the housing market this last year has been nearly unprecedented. Inventory is at record lows, and with the combination of low interest rates, a slew of millennial buyers ready to purchase their first home, and the pandemic requiring that people spend more time in their houses, demand for those houses is steadily increasing. Right now, the few sellers who do list their homes are receiving offers almost immediately, and sometimes even before they officially go on the market.
This is creating a huge amount of competition for buyers, who are often up against 10, 15, or 30 other competitive offers. While offering over asking price is often the first step, that isn’t always enough to make an offer stand out anymore. In fact, right now in Minneapolis, where I am actively trying to purchase a home, many houses are going for between $20 to $40,000 over asking price. To even be considered in the running, buyers are now waiving the inspections on homes as part of the purchase agreement in addition to offering way over the asking price. Although this is technically legal, it is certainly not advised. This article from J.blumen and Associates, a real estate law service in Massachusetts, points out “when you waive your inspection contingency, you assume all financial risk for whatever condition the property is in”. This risk can add up to “thousands, and in some case, tens of thousands” of dollars.
A home inspection is not a sure-fire way to guarantee that something will not be wrong with a house when a buyer purchases it, but it can alert the buyers to any issues that might require a significant amount of money to fix, something they might not have after making one of the largest purchases of their lifetime. This is especially true of those seeking affordable housing, as buyers in this price range often pour a majority of their savings into the purchase of a home.
If this market continues on this trajectory and buyers feel obligated to waive inspections in order to have their offer accepted, we might see an increase of people who find themselves in compromised positions. Inspections are meant to protect buyers from ending up in a situation that could really hurt then financially, but right now, with most purchase agreements skipping out on them, sellers are the only ones truly benefitting. This unspoken requirement preys on first time home buyers and those competing for the few affordable units on the market, when in reality we should be protecting those buyers, since they are often the most vulnerable. An inspection is a small upfront cost that could ultimately save buyers tens of thousands of dollars by allowing them to analyze the risk they are capable of taking on with the purchase of certain homes. They should be a required part of the process, not an optional contingency used to make an agreement more appealing to sellers who are already benefited in such a hot market.