Home inspections are a bargaining chip in Philly area’s hot real estate market

By now, home buyers in the Philadelphia region know they may have to pay above asking price to win bidding wars that have become more common this year, as inventory and interest rates remain low and buyer demand stays high.

But several times, Realtor Garrett Elwood’s clients offered “well over” the asking price, only to be rejected.

“We started to ask what happened,” said Elwood, who works with clients in Philadelphia and the Main Line for The How Group at Compass Real Estate. “And on a couple different occasions, an agent has told me, ‘Your offer was higher, but the other buyer waived inspections.’”

Before this year, that was something he remembers happening only one time, back in 2016. It used to be that people who skipped inspections were cash buyers and investors who planned to gut a property. Now, in the region’s decidedly seller’s market, real estate agents say more clients are losing properties to buyers who offer to forgo home inspections, a cornerstone of the purchase process meant to protect buyers and sellers, and a step that can sink a sale.

“The No. 1 thing the seller wants is to go to closing,” Elwood said, and after negotiating price and terms, the inspection is the biggest hurdle. The almost guarantee of closing “is sometimes worth a lot of money to some sellers.”

For a typical home inspection, a potential buyer hires a professional to thoroughly examine the structure and systems of a house to ensure that they are safe and that expensive problems don’t blindside the buyer after a purchase. Inspections also can help protect sellers from liability.

When Pennsylvania allowed in-person real estate activity to resume in May, Stephen Thompson, owner of S.P.T. Home Services, was the busiest he’s been in his 14 years as a home inspector, visiting seven to 10 homes a week in Philadelphia and surrounding counties. That lasted about a month, he said.

“The market got crazy, and that’s when I started to see a drop-off in inspection numbers,” he said.

Inspections dipped to four to seven per week. When he asked real estate agents what was happening, they told him, a lot of people “are just forgoing the inspections. That’s the only way they get the bid.”

» READ MORE: Homes for sale in the Philly region are going quickly

He knew the market was competitive, and homes were staying on the market for only a few days, but the news came as a shock. He’s been pushing for sellers to get home inspections before they list their properties, but that’s been tough, he said, because sellers see other homes sold without inspections. “So why would you open a can of worms, almost,” he said.

As for the buyers who waive inspections, he said, “it’s people who desperately want to move or people who desperately want to be in a certain area.”

Understandably, Bruce Barker, the incoming president of the 7,500-member American Society of Home Inspectors, said waiving an inspection is not a good idea.

“A home inspection is there to reduce, not eliminate, but reduce risk for everybody,” Barker said. “So it’s really not in the seller’s best interest for the buyer to forgo the inspection. If there’s something big, that could end up in litigation later.”

Home inspections give buyers a clear picture of their prospective property, so they know what they’re purchasing and can ask for repairs from sellers if necessary. The cost of an inspection starts at a few hundred dollars and depends on the size and age of the property. Standard home inspections don’t include checks for problems such as termites or the radioactive gas radon, which require separate examinations.

Home inspectors and real estate agents have been suggesting alternatives to skipping inspections. In addition to examining homes before sellers list them, some inspectors accompany potential buyers to showings or offer shorter versions that focus on the most potentially expensive fixes. Some buyers and sellers choose to sign contracts that include pass-fail, take-it-or-leave-it inspections.

» READ MORE: What to expect when it's time to get your home inspected

“If you’re willing to take the risk, then forgo the home inspection,” Barker said. “Just realize that if you do, you assume the risk, and if there is a big problem, it’s your problem. So it’s all a matter of risk management.”

Area real estate agents said they don’t recommend that clients waive inspections, but clients make their own decisions. To help buyers in this competitive market, agents are making sure they are preapproved for mortgages and look for homes below their limit, so they have room to make higher bids. Buyers also can increase their down payment or absorb the first couple thousand dollars in needed repairs identified by an inspection. Some buyers offer to pay transaction fees for the seller.

Barker said many of the American Society of Home Inspectors' members are swamped with work, so “it must be that not a lot of people are forgoing inspections."

Ben Poles, owner of Rest Assured Inspections based in Pottstown, said October was one of his most profitable months in the five years since he started his company. He said he hasn’t seen home buyers skipping inspections, but that based on strong buyer demand, “I wouldn’t doubt that.”

» READ MORE: A historically low number of Philadelphia houses are for sale

He’s noticed that because of the bidding wars, people have less money to spend on various aspects of the home buying process, including inspections. After the pandemic started, he started offering shorter, less expensive inspections to experienced home buyers. Those inspections focus on major elements such as roofs, plumbing, and electrical systems, and cost half the price of the full version.

Most people, however, stick with the full inspection, because they want to know everything they can about their potential home, he said.

Steve Inge, owner of 360 Inspections, said he has heard about some buyers waiving inspections, "but the crazy thing is, I’ve been busier than I’ve ever been.” For two years, he’s inspected homes in Philadelphia and its collar counties. He said he enjoys teaching potential homeowners about properties and giving them a clear picture of one of the biggest purchases they’ll ever make.

“I got into this to help people make good decisions,” Inge said.

Adam Smith, a home inspector at Liberty Inspection Group based in Media, gives “walk and talk” inspections that take about a third of the time of full versions. Afterward, buyers can decide whether they want a more detailed examination or whether they want to waive the inspection. Smith offered the shortened inspections before the pandemic, but buyers are more interested in them now, he said.

» READ MORE: 30-year mortgage rate drops to record low

He’s found buyers to be more on edge these days, because they’ve already lost out on several homes. Clients are calling to ask for next-day inspections, because they’re trying to stay competitive or have agreed to short contingency periods.

Elwood, the Realtor at The How Group, said that for a couple of sales, he had Smith on standby to do shortened inspections during showings, but the clients were able to submit winning offers with standard inspections.

“We had that tool in our tool belt,” he said, “so that if we needed to, we were ready.”