Waving The Home Inspection Risk vs. Reward: Skipping A Critical Step in Real Estate Transactions

When it comes to skipping home inspections, real estate agents are in the firing line. Nearly one in five new homebuyers is opting out and lawsuits against realtors for undisclosed issues are on the rise, threatening financial stability and professional reputations. We look at why this trend is a problem and what can be done to protect everyone involved.

Last month, around 19% of new homebuyers waived their home inspection contingency, according to the National Association of Realtors. This is slightly down from the 21% recorded in April 2023, but it is still alarmingly high. And with the matching trend of growing numbers of buyers suing their realtors for undisclosed issues, nearly one in five sales could land a realtor in court.?

In 2023, global underwriting firm Victor Insurance Managers reported seeing year-on-year increases in both the frequency (9%) and severity (13%) of errors & omissions (E&O) claims between 2021 and 2022, with paid losses averaging around $39,000. The firm reported that not only would the increasing likelihood of real estate professionals being sued continue in the months ahead, but macro-economic trends were causing increased costs for home repairs, resulting in greater claim remediation expenses to rise.?

Victor Insurance Managers Senior Vice President of Real Estate Zach Vollmer told Insider that “cyclical increases are driven by the ‘unhappy consumer’ who is more likely to file a suit after having had a negative emotional experience during a real estate transaction.”

Insider reported that Vollmer said it was common for real estate professionals to be sued when house prices dropped. Lawsuits were often brought by buyers who overlooked minor issues during the inspection, leading to a home value lower than what they paid. Some claims involved nondisclosure, where an agent or broker withheld important information from the client, or allegations of negligence and misrepresentation during the transaction.?

Master Inspector and Founder of Home & Commercial Inspections, James Jones, said he has witnessed first-hand the damage caused when home inspections are waived.?

“In the industry, many people are seeing problems. I personally have experienced buyers waiving home inspections and not seeing the defects in their new homes. It causes real financial hardship for everyone. It affects all parties—the homeowners come after the realtors, and if they can’t file a claim against the realtor, they’ll go after the seller. For the sake of a small inspection fee, everyone loses,” said Mr. Jones.

What’s the Solution?

According to the Ohio Home Inspector Network , Ohio must enshrine in law the buyer’s right to a pre-purchase home inspection. The threat of legal action against realtors could be avoided if buyers were legally guaranteed this right. And buyers would feel confident that asking for an inspection would not affect their bid for a property.?

Currently, in Ohio, there’s no right to a property inspection. The FHA requires an appraisal (and so do many mortgage lenders for all kinds of loans, such as conventional loans), while an inspection is an optional but highly recommended step. It can be even more challenging when buyers are unrepresented by real estate agents, when involved in for sale by owner, or in contract with the builder purchasing new construction.

Why do buyers waive the home inspection? Many buyers desperate to win their dream home think removing the inspection contingency will sweeten the deal. They use this tactic to increase the competitiveness of their offers by promising the seller there won’t be any last-minute negotiations or complications and that the deal will close smoothly. Under the inspection contingency, if a problem is discovered within the inspection period, the buyer can request repairs or cancel the purchase.?

Ohio’s home inspector network has identified websites and experienced situations first-hand where realtors have advised buyers that the best way to win an offer is to waive the home inspection. Normalizing this practice blatantly disregards consumer protection and puts everyone at risk. And these risks are not just financial—the family’s health and safety are in danger if issues such as faulty wiring or high radon gas levels are not identified before moving in.?

“We have to get the message out to real estate agents that they are at a seriously high risk of ending up in court. And we have to reassure buyers that asking for an inspection will not affect their ability to buy their home. That’s why we believe this should become law in our state,” Mr. Jones said.

This year, a new bill was introduced in the Massachusetts House and Senate to ensure homebuyers have the right to a home inspection. The bill states that “No seller of a residential structure or of a residential condominium unit, or agent thereof, shall condition the acceptance of an offer to purchase on the prospective purchaser’s agreement to waive, limit, restrict, or otherwise forego prospective purchaser’s right have said structure or unit inspected...”?

The Act will ensure waivers cannot be exploited to deprive individuals of their right to an inspection. Sellers and their agents are prohibited from conditioning the acceptance of an offer on the buyer’s agreement to waive inspection rights, except in certain circumstances. While the law doesn’t force buyers to get an inspection, it ensures their right to do so within a given timeframe.

The Ohio Home Inspector Network is lobbying for the inclusion of the “Right to a Home Inspection” in Ohio. OHIN believes that granting every homebuyer the right to a professional home inspection was a matter of fairness, safety, and economic well-being.

OHIN believes this fundamental right will empower homebuyers and contribute to a healthier real estate market and stronger communities by promoting trust and transparency. This will align Ohio with the industry norms and best practices we see in other states. If we can educate sellers and buyers, we’ll end up with responsible property owners who contribute positively to their communities.?