Homebuyers are still waiving inspections. Could the latest Fed rate cut help turn the tide? 

To compete in an overcrowded housing market, Eva PenzeyMoog and her husband made the tough decision to waive a house inspection.

Their real estate agent told them it’s always the same song and dance: People make an offer. They want a home inspection. And then they get rejected. But once they waive an inspection, their offer finally gets accepted. 

The couple, who began house hunting this April, couldn’t even attend showings because they kept getting canceled. 

“I knew it was a competitive market. I didn’t realize it was going to be so competitive in Milwaukee, Wisconsin,” PenzeyMoog said. 

Finally, a house just one block away from her family popped up on the market. “We really wanted this house because it’s so close to my sister and her husband, and they have a baby who’s very close in age to our baby,” she said. 

They ended up beating out seven other offers. While PenzeyMoog loves her new home and the quality time she gets to spend with her sister, waiving an inspection was stressful.   

“It’s the biggest purchase you’re ever going to make in your life, and you don’t even get to know exactly what you’re purchasing,” PenzeyMoog said. 

A frenzied pandemic-era market

For years now, the  housing market has been highly competitive thanks to limited inventory and high demand. Buyers like PenzeyMoog are now frequently waiving inspections or home inspection contingencies, which would allow them to back out of an offer contingent on findings from the inspection. 

But houses can have hidden issues that end up costing buyers tens of thousands of dollars, said Mark J. Schmidt, a broker associate based in central New Jersey. 

“I’ve been doing this 22 years now. When I got into the business in 2002, the market was crazy. I thought, ‘It’s never going to be crazy like this again.’ And I was wrong,” Schmidt said. 

Data from the National Association of Realtors shows that 25% of buyers waived an inspection contingency in April 2021, the first month the NAR began tracking this data. The percentage of buyers waiving this contingency reached a peak of 30% in June 2022, before falling to 18% in August of this year.

While the NAR doesn’t have pre-pandemic data, that 18% still seems like a bigger percentage than what realtors were seeing prior to the pandemic, said Jessica Lautz, deputy chief economist at the NAR. 

Schmidt said he can only recall one client who ever waived an inspection prior to the pandemic. Now, it’s common for buyers in his market to limit the inspection, while some will completely waive it if the home is in high-enough demand. 

Although PenzeyMoog and her husband waived an inspection, her dad (whom she calls an excellent handyman) toured with them and examined the basement closely. He didn’t find anything alarming, which helped put them at ease. 

Once they moved in, the couple hired someone to do an inspection. Thankfully, there weren’t any major surprises, although the porch wasn’t in the best shape. While it would have been nice to know that in advance, PenzeyMoog said that wouldn’t have changed their decision to buy the home. 

“It’s wonderful to be a homeowner and to not be subjected to the whims of a landlord,” PenzeyMoog said. 

She doesn’t have any regrets, but she still thinks home inspections should be the norm. 

“This is just something that should be part of the process. You should just be able to have the information about the house that you’re putting an offer in on from the get go,” PenzeyMoog said. 

Sometimes the gamble to waive an inspection or inspection contingency pays off, but New Jersey broker Mark J. Schmidt said he advises homebuyers to never waive a home inspection. What you can do, however, is limit a home inspection to major structural, environmental and safety issues, he said. 

“That still protects the buyer in the event that there’s something really wrong with the house. You can have something that’s hidden from the naked eye. You could have a mold issue, you could have radon, you could have a foundation issue,” Schmidt said. 

Maureen Coyle and her fiancé, who began house hunting near Philadelphia in early April, remained steadfast in their decision not to waive a home inspection contingency. 

“Our mindset was if we put in offers and they reject us because we are not waiving an inspection, that’s enough of a red flag that we don’t want the house,” Coyle said. 

By June, they successfully purchased their first home in Folsom, Pennsylvania, after an inspector looked at it. 

The inspector said the roof will eventually need to be replaced, all the sinks had been leaking, and the home’s circuit box was old and overloaded. 

Thanks to the inspection, they negotiated with the seller, and were able to receive $10,000 in seller’s credit. 

The impact of falling interest rates

Edward Coulson, a real estate expert, said we’re in a market that favors sellers, but it’s cyclical, which means he thinks there will be a point in time where buyers regain some bargaining power. 

As for when that time will come? The Federal Reserve just cut interest rates for the first time in four years, lowering them by a half a percentage point, which could in turn help lower mortgage rates further. The 30-year mortgage rate has already been on the decline, falling from 7.79% to 6.08% over the past year. 

Homeowners who are locked into the low mortgages they got during the early years of the pandemic have been reluctant to sell their home and buy another one at a higher rate, explained Coulson, who’s an economics professor at the University of California, Irvine, and the director of the school’s Center for Real Estate. 

Coulson said he thinks that may have contributed to the housing shortage. 

Now that rates have gone down and are predicted to drop further, we may see some homeowners newly willing to sell. 

“Maybe some of the buyer bargaining power will return,” Coulson said. 

But he pointed out it’s still way too early to predict – we’ve approached fall, a time of year when housing sales typically drop. 

And now that the 30-year mortgage has fallen, more buyers could enter the market, making it even more competitive, Lautz said. 

For now, some lawmakers are pushing for legislation that will protect homebuyers.

Massachusetts Gov. Maura Healey signed a bill last month that states a home offer, with some exceptions, cannot be contingent on a buyer’s right to waive an inspection. 

Having an inspection allowed Coyle to buy a home without any surprises, giving her peace of mind. 

“Waiving an inspection because you want that house so bad could end up leading you into a money pit,” Coyle said. “Your ultimate goal is to have a safe place to live with a good foundation.”