Inspecting and Testing Contingencies. Are They Worth the Cost?

Children were once immune from injury by monkey bars, kid-powered merry-go-rounds, and teeter-totters. They grew up to be risk-tolerant young adults. Surviving eight grades of recess on asphalt playgrounds prepared them to be teenagers fearless of Normandy and Pacific island beaches.

In 1976, a residential offer to purchase in San Diego was one page. Having faced instant death from ages three and on, a child of the forties was not going to grow up to fear reverse polarity, ungrounded outlets, and cracks in concrete. Prepurchase home inspections were uncommon until the late 1980s. Late Boomers learned to accept risk, the price of participation. That changed when the Gen X crowd came into the home buying market, but let’s not blame them for their risk aversion tendencies. We boomers saw the opportunity to profit from the rising real estate market without holding a license of any kind. Everyone could be a home inspector as long as you had a pen, pad of paper, and a ladder. A slight fear of a giant catastrophe made the $200 fee look like money well spent to ensure a ready supply of ready buyers for the inspector.

By 1992 home inspection contingencies in an offer became the norm. About that time, another scare was introduced to the process—radon gas. A simple radon test and mitigation system generated about $4,000 of income for radon testers and mitigators. ($300.00 was enough to cover all of the parts and labor, but demand exceeded the supply of contractors, and prices rocketed.) There is at least one radon mitigator per REALTOR today. For $650, you can have your house tested today, and a mitigation system, guaranteed to work, installed on Saturday.

Home inspection contingencies and radon testing contingencies take up at least an entire page of the thirteen-page Wisconsin Offer to Purchase. Five years ago, waiving the inspection was uncommon. Three years ago, radon testing contingencies were added to the standard purchase agreement, and the contingency took off. However, by 2020, home sellers had grown reluctant to accept offers with testing and inspecting contingencies. I believe more offers were rejected over testing and inspecting contingencies than were rejected because of price. REALTORS were about a year slow in catching on to the fact that testing and inspecting were luxuries the market was no longer permitting. Early adopters to the practice of writing offers owners would eagerly accept held a big advantage for a long time.

It appears there has been acceptance of the slimmed-down offer by REALTORS and homebuyers. Where we once thought it was reckless to make an offer without inspecting and testing contingencies, the vast majority of offers are written to appeal to the seller, more than to protect the buyer from something someone fears might happen, but rarely does.

The fast-paced seller’s market has returned us to pre-1990 thinking about risk. There are a hundred protections you could insert in an offer. But every contingency you include is one more reason for an owner to reject your offer and sell to someone else. Four offers came in on one property this weekend. None had a contingency to inspect, test, or obtain a financing commitment. Wrapping a client in bubble wrap will prevent them from experiencing any surprises or elation over getting their offer accepted.

Less is more. Give clients a choice to insulate themselves from anything you can think of that might go wrong. Everyone does not want the same protections because everyone has different tolerances for risk. Remember when you’re drafting an offer, this is the buyer client’s offer, not ours. Give them choices, and you give them chances.

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