Should a House Flipper Pay for a Home Inspection?

Should a House Flipper Pay for a Home Inspection?

An experienced house flipper, represented by an experienced broker, viewed a foreclosure that was listed for sale.  The investor made an all cash offer of $28,000 with no inspection contingency for that bank-owned property.  The offer was accepted, and the investor purchased the house.  The next day he sent his work crew, who had worked with him on multiple projects in the past, to completely renovate the house.  However, by noon they walked off the job stating that the house was structurally unsound and could fall down on them at any moment.  Further evaluation revealed that it would be better to tear the house down than to attempt to fix it. 

The investor’s broker contacted me and asked if they could give the house back to the bank and receive a refund.  After all, they had a receipt and were unsatisfied with the product that was purchased!  Sadly, I confirmed for them that there was no return policy on foreclosures.  I thought, “This isn’t Bed Bath & Beyond!”  I told the broker that the investor should consult his attorney.

Ultimately, the experienced investor lost his shirt on this deal and ended up with a vacant lot.  How could someone so smart do something so stupid?

What if he had spent around $350 to $500 for a home inspection?

So, is the moral of this story that a real estate investor should always pay for a home inspection?  Well, the answer is yes, most of the time.  My wife and I sometimes make offers with no inspection contingency, and sometimes we do not pay for a home inspection.  Yet sometimes we do.  It depends.

The case for an investor having a home inspection contingency

  • An inspection contingency gives the buyer the opportunity to send in inspectors and contractors.  With more certainty about the house’s condition and repair costs, the investor can:
    • Terminate the contract and receive their earnest money deposit back, or
    • Negotiate a price or repair concession, or
    • Buy the house in As-Is condition.
  • Oftentimes the home inspection report helps the buyer negotiate a concession that is more than the cost of the inspection.  Sometimes an investor will deliberately make a higher offer that is likely to be accepted, knowing that they will recoup some money by negotiating repairs later.
  • An inspection contingency helps the buyer calculate the renovation costs, making them far more likely to stay on budget.  A contractor may be reluctant to provide a detailed estimate prior to a property being under contract.  With the knowledge that the buyer is under contract, a contractor is usually thrilled to put together an estimate.
  • Conducting a home inspection helps protect the buyer’s money.  One costly deal could spell disaster for an investor, especially if a substantial portion of their savings is tied up in the deal.
  • Some home inspectors offer a limited warranty against problems that they failed to pinpoint.  This is a nice form of protection for the buyer.

The case for an investor not having a home inspection contingency

  • If the investor decides to make a low offer or is in a competitive offer scenario, not electing an inspection contingency could sway the seller to pick their offer.
  • If an investor is buying numerous properties, the cost of home inspections can add up.
  • If an investor has extensive construction experience, they might be able to do without a home inspection in many cases.  Of course, not everyone knows it all, and sometimes an experienced person becomes overconfident in their abilities to see problems in a house.
  • Some bank-owned properties and some sellers may not consider an offer with an inspection contingency.  For example, an investor buying a HUD-owned house may conduct inspections yet may not terminate due to inspection results, lest they forfeit their deposit.

So, what’s an investor to do? 

If a person is a novice investor, regardless of their construction experience, they should pay for a home inspection.  To build their experience, I suggest they attend at least part of the home inspection.  My recommendation is to attend the final hour of the home inspection, so the inspector can go through the main points of their findings in person.

If a person plans to invest a substantial portion of their savings into a property, they should pay for a home inspection.  It’s worth it to protect precious capital.

If an investor believes that a long inspection period, such as 10 to 15 days, is too much for a seller to accept, then the investor could put a shorter period like three or five days into their offer.  Sometimes a short inspection period, provided that the home inspector can move that fast, is just enough to convince a seller to sign the contract.

If an investor has a special deal with a home inspector, such as a discounted price or priority scheduling, it can be well worth it to elect inspections in each offer.  There are some home inspectors who will provide a verbal report or a bulk price for repeat business from serious investors. 

In the final analysis, a real estate investor should pay for a home inspection unless there are extenuating circumstances or another way to mitigate risk.  Quite frankly, the best way to mitigate risk is to pay for a home inspection. After all, my first rule of investing is: Don’t Lose Money.

Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania.  He became a full-time real estate investor in 2004 after serving in the U.S. Navy.  Tai has made colossal mistakes in investing (and learned some things along the way).  He has owned over 200 properties with various investment partners, and he has been involved in over 200 more transactions as a real estate broker in both Pennsylvania and Tennessee.  Tai and his wife Amira enjoy hunting for investment properties.  Contact Tai if you need some consultation on real estate investing.  Tai may be available for coaching and speaking engagements on a variety of real estate topics.  Send an email to  Tai is passionate about helping investors make money and avoid mistakes.

No Comments

Post A Comment