Risky Business

Risks associated with no inspection contingency in an offer

 Cori Lamont  |    July 19, 2021
Risky Business

In the last several months, the WRA legal team, alongside our members, has been tracking the trends of this very competitive seller’s market. While we have seen escalation clauses to cash offers to purchase prices well over list deals, one trend that is likely one of the most disconcerting is the buyer choosing not to have a home inspection contingency included in the offer. 

Buyers trying to compete with others by writing “clean” no-contingency offers is not surprising in a competitive market. However, this practice comes with a very large risk. 

Without a home inspection, the buyer has no way of knowing the condition of the property. While real estate licensees have to inspect the property and disclose material adverse facts, real estate licensees are not required to have the knowledge, skills or training of inspectors. In addition, while the seller may complete a real estate condition report, there are often conditions they don’t know about their property as well as conditions they may not properly disclose or not disclose at all because they don’t believe the condition to be a defect. Therefore, a buyer choosing just to rely on the seller’s real estate condition report is also very risky. Read more in “The Home Inspection in a Competitive Market,” in the May 2021 Wisconsin Real Estate Magazine at www.wra.org/WREM/May21/HomeInspection.  

As a real estate licensee, you are to draft the offer according to the instructions of the buyer; but it is equally important, from a risk reduction standpoint, to document that the buyer understands and signs an acknowledgement that they wanted to write the offer without an inspection contingency and they understand the risks associated with doing so. Therefore, the WRA legal team created a form to assist you in getting this documented by the buyer. 

The new WRA Buyer Acknowledgement of Risk Associated of Not Having a Home Inspection (WRA-BAR) form explains:

  • The benefits of having a home inspection.
  • The buyer has been advised of the benefits of having a home inspection.
  • The buyer affirmatively declines to include a home inspection contingency.
  • The consequences of not having a home inspection contingency.
  • The buyer holds the agent and the agent’s firm harmless from the consequences associated with not including a home inspection contingency.
  • In addition, the WRA-BAR form includes buyer signature lines so the buyer makes their acknowledgement official.

A buyer choosing not to include a home inspection contingency creates the potential future situation involving a buyer learning of a post-closing condition after closing and later considering, or choosing, to litigate the matter. 

Again, this form is intended to be used at the time of drafting the offer to purchase to help the buyer understand the gravity of choosing not to include a home inspection in their offer to purchase. Therefore, when the buyer is threatening litigation because they have learned of a condition issue after closing, this form can be produced to remind the buyer they made an educated and informed decision when they chose to move forward without including a home inspection contingency in their offer to purchase. Lastly, while the hold harmless provision is not a “get out of jail free” card if the buyer threatens to sue in the circumstances stated above, it certainly should give the buyer and their legal counsel pause. This is especially true when the buyer tells their attorney, “the agent never explained to me the consequences of writing an offer without a home inspection contingency,” and the buyer’s attorney later discovers the buyer signed a one-page form explaining the risk associated with not having a home inspection.

More WRA-BAR details

Access your copy of the WRA-BAR form within your zipForm account or within the WRA PDF forms library at www.wra.org/formslibrary (subscription required). 

Learn more about writing offers without an inspection contingency in episode 16 of the WRA Legal Update Live video series at www.wra.org/LUL/Episode16.  

Cori Lamont is Senior Director of Legal and Public Affairs for the WRA.

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