Given A Hot Housing Market, What Pitfalls Await Buyers Who Forgo Inspections?
MINNEAPOLIS (WCCO) -- The red-hot housing market has buyers getting creative in order to land their dream home. They're even using tactics not often advised in order to sweeten their offer. What risks are home buyers making in this market? And can buyers avoid them while staying competitive? Good Question.
It's the time of year when "For Sale" signs fill front yards. But good luck if you're trying to buy in Minnesota.
According to Minnesota Realtors, there were 18,074 homes on the market in May 2020. In May 2021, it dropped 50.5% to 8,953. The limited inventory is driving up prices. The average sale price for a home in May 2020 was just $299,637. In May 2021, it jumped 20% to $361,325.
The shift in the market has been felt by James Peterson, owner of Peace of Mind Home Inspections.
"The numbers I have from Realtors, as well as appraisers that are doing all these purchase agreements, say between 50-70% of the purchasers are sometimes forgoing home inspections," he said, acknowledging he's noticed a drop in business.
The fact that so many are skipping a normally routine and important part of the home buying process concerns him.
"First thing I think of is safety. There's so many decks I've seen that have safety issues, electrical safety issues, potential mold growth in these houses that can affect families. I'm a business man, but I'm a father first," he said.
Old or amateur electrical wiring is a big problem he notices, especially in older homes. Water that pools in basements is another issue, specifically in Minnesota.
"Which will, in turn, cause that foundation to rise and fall and have some issue," he said.
Does the age of the house make a difference whether it's safer to forgo an inspection?
"It sure does," Peterson said.
Skipping an inspection for a home that's only few years old is nowhere near as risky as a home pushing 20 to 30 years.
"That's the time where we start to see a large number of windows or furnace or roof and these other systems that have estimated lives, and that 30-year mark is where we see a lot of them start to come up," he said.
An exception to this situation is new home builds. Peterson said inspections for those properties are increasing and rightfully so.
"Because buyers are feeling that they're at a dead end with things that should be fixed that aren't being fixed, or being done improperly because of a lack of materials or labor," he said.
Why are people forgoing an inspection right now?
"They think that it makes it a bit stronger (offer), more predictable for the sellers," said Steve Albers, Principal at Avenues and Acres Home Team.
Instead of forgoing inspections, Albers suggests buyers negotiate having one that focuses only on certain parts of the house.
"The roof, maybe HVAC, maybe foundation. So you don't necessarily need to have it contingent upon the entire inspection but maybe these important points to buying a home," he said.
What is the risk associated with making offers over asking price?
"Certainly appraisal's not guaranteed," said Albers. "You need to have a really good sense and confidence in your financial stability."
Homes across the Twin Cities have been fielding offers 5-10% above asking price with regularity, sometimes even higher. Albers said buyers can go other avenues to entice sellers, such as covering a seller's closing costs. It increases the seller's net return, but it will require more cash up front.
"But you're not elevating that sale price to create that risk, not only for the buyers but also depending on the terms of that language, the sellers too," he said.
