Homebuyers who skip inspections in a competitive market may find costly surprises later

The woman had just bought a flipped house from an investor in Montgomery County. She skipped a home inspection to compete with other buyers, and a few months ago she asked inspector Ben Poles to take a look.

As part of his usual examination, Poles, owner of Rest Assured Inspections in Pottstown, filled the tub in a second-floor bathroom. The water was not hot. When he came down to investigate the cause, he saw that it wasn’t the homeowner’s biggest problem: water was leaking through the ceiling and the drywall was falling apart.

“When I was borrowing paper towels from neighbors, I thought, this is why you have the house inspected before you buy the house,” he said. “Because now it’s up to you to fix things.”

He called the landlady and “you could hear his heart sinking”.

To make offers more attractive in a strong seller’s market and to beat competitors, buyers continue to skip home inspections, designed to protect them. And they’re doing it at rates the real estate industry has never seen before. Inspection contingencies allow buyers to walk away from a deal or try to get sellers to pay for repairs before a sale.

“In this white-hot market, buyers are feeling the pressure to make all kinds of concessions,” said Angela Giampolo, chief attorney at the Philadelphia-based Giampolo Law Group, which primarily represents members of the LGBTQ community.

” READ MORE: Home inspections are a currency in the hot Philly area real estate market

This can be a winning – albeit risky – strategy for some.

“For better or for worse,” said Scott Reidenbach, founding director of Wayne-based Reidenbach & Associates, “you now have the house.” And some buyers find themselves in the “worst” category.

The Montgomery County woman with the destroyed bathroom was one of many customers of Poles who waived the home inspection and then later told her, ‘We just want [one] for peace of mind.

“Some of these people,” he said, “they don’t have peace of mind after I walk in there.”

As of fall 2020, Poles said, he hadn’t really seen any homebuyers forgoing inspections. “It’s changed a lot,” he said.

Record buyer demand and record low housing supply are fueling fierce competition. The bidding wars that have been a feature of the pandemic housing market are still happening. Buyers get more personal in their “love letters” to sellers, offering tens of thousands of dollars more than listed prices and offering perks ranging from the typical (like money) to the unusual (like Spanish class).

” READ MORE: Trying to buy a home in the popular Philadelphia area market? Prepare for battle.

The usual concessions that made it possible to convince sellers were not enough for some who have their choice of offers and are often looking for the simplest and fastest offer. If buyers forego inspections, that’s one less opportunity for the sale to fail, and the seller can essentially sell the home as is.

“It’s making people desperate and making bad decisions, and they’re really paying the price,” said Austin Freundlich, partner and co-owner of Philadelphia-based Freundlich & Littman. “There are a lot of first-time home buyers who are going to get completely ripped off.”

Buyer behavior will likely return to normal once the market is slowing down, which could happen as mortgage rates rise and fewer potential buyers can afford a home. But even in the past two years, many buyers have become owners without skipping inspections. In many cases, they have simply been more patient.

” READ MORE: Eager homebuyers offer Spanish lessons and cash. But the signs around Philly point to less competition this summer.

Real estate professionals aren’t advising buyers to forgo home inspections — probably the most important purchases they’ll ever make — especially in a city like Philadelphia with a stock of older housing. Freundlich just bought a house, and given what he’s seen in his law practice, he said he wouldn’t even consider giving up any contingencies.

Giampolo offers this advice to buyers: “Agree if you outbid. Don’t do the super risky stuff. Know that you will have a home at some point.

Walking through a home without seeing obvious problems or buying newly built homes can give buyers a false sense of security. Inspections are designed to find problems that are not obvious.

The new owners are having problems with HVAC systems, lawyers said. They’re poorly constructed, which can mean leaks and mold, or they don’t properly control temperature or ensure whole-home air quality.

The roofs are leaking. The floors of newly built houses warp. Termites compromise the structure of the house. Cracks in the foundations let in water. Bad plumbing causes water to leak through the walls.

Freundlich had a client whose bedroom wall had collapsed due to a water leak. Another customer discovered that the basement of the house was flooded with sewage.

The calls to Bose Houser, president and CEO of Philadelphia-based design and construction firm Rocks + Cornerstones, include complaints about non-working electrical switches and overdue toilets.

“A lot of the time it’s the things you don’t see until you start trying to use the house,” she said.

” READ MORE: What to expect when it’s time to have your home inspected

Construction costs are up and the availability of materials is down. When buyers who waive inspections find problems, they may have to delay moving in for months until those issues are resolved. Buyers could face thousands of dollars in costs they didn’t expect. They may have exhausted their savings to buy their home, and they still have a mortgage and other homeowner’s expenses to pay.

Buyers know they made a mistake.

“They call me and their tail is between their legs,” Giampolo said. “You can hear it in their voice.”

Buyers who waive their rights to inspections still have a few options if they find problems after a sale. They can sue sellers under consumer protection laws or challenge a builder if they find defects in new homes under warranty.

Anger over bad deals is leading to increased lawsuits from buyers against sellers, Reidenbach said.

A common route is for buyers to accuse owners of not telling them everything they knew was wrong with the house on the seller’s ownership disclosure form, a document required by law. Through negotiation or litigation, they may try to get money from the seller to fix problems by accusing the previous owner of deliberately covering up problems or not disclosing problems they should have been informed.

” READ MORE: Defects in the house you are selling? Disclose, disclose, disclose.

But, Giampolo said, “you don’t want to hang your hat on that.” Proving what a salesperson knew can be difficult. And buyers must weigh the legal costs of investigating and possibly suing their sellers against the seriousness of the issues to be resolved.

If a seller leaked everything and the buyer waived inspections, Reidenbach said, “that buyer should have no claim against that seller.”

His firm represented a seller who sold a Chester County home to a buyer who waived inspections. After moving in, the new owner discovered that the pool needed major work, including a new cover, a repaired heater, and a concrete pool surface replaced or resealed. The seller chose to negotiate a settlement.

“To my dismay, many people still give up everything when they make an offer,” said Reidenbach, who has practiced law for 24 years. “I’ve never seen so many buyers give up on so many contingencies.”

Some buyers waive appraisal contingencies, which say the sale depends on a lender agreeing that the home is worth the price. If the lender determines the home is worth less, these buyers must find the difference in value. Waiver of mortgage contingencies means buyers can’t walk away from the deal if they can’t get financing by the settlement date.

With bidding wars inflating home prices, first-time buyers in particular may see no choice but to forego mortgage and appraisal contingencies, Giampolo said. It’s a danger when they don’t have the money to fill the funding gaps.

” READ MORE: Uncertain ownership prevents maintenance and sale of homes in Philadelphia.

Giving up clear title or ownership of a property is “off the Richter danger scale,” but buyers across the country are doing it, Giampolo said. They can later find someone else’s privileges passed on to them.

“I feel like people think it’s over the top that title issues are happening. but it’s just notespecially in older cities like ours,” she said.

Freundlich advises homebuyers to do their due diligence before buying and to avoid getting caught up in the hype they see around them.

“It might not be worth it,” he said.

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