The problem there is the observant feat. Passive checks are pretty much optional and arbitrary, so creating a feat to boost them specifically is silly. Instead it should have boosted checks to do the specific things it is trying to enhance (which I THINK is spotting traps, hidden doors and hidden creatures), instead of boosting a mechanic subset that may or may not align with those things.
While passive score usage is certainly optional. The same can be said of critical hits on a 20, or allowing the monk class or multiclassing.
PHB p177 said:
Passive Perception. When you hide, there's a chance someone will notice you even if they aren't searching. To determine whether such a creature notices you, the DM compares your Dexterity (Stealth) check with that creature's passive Wisdom (Perception) score, which equals 10 + the creature's Wisdom modifier, as well as any other bonuses or penalties. If the creature has advantage, add 5. For disadvantage, subtract 5. For example, if a 1st-level character (with a proficiency bonus of +2) has a Wisdom of 15 (a +2 modifier) and proficiency in Perception, he or she has a passive Wisdom (Perception) of 14.
It doesn't say you
may choose to use passive perception
but its totally optional and a variant rule,
it says use passive perception. You are free in your house to ignore any rule of DnD to better facilitate play. But that doesn't mean you are accurately applying the rules.
Why do they use passive perception instead of contested checks?
Because of two things. Consistency, and speed. If you roll high while hiding, you should have a good chance of successfully hiding. Under the old contested check system then you had increased randomness. AND it made it pretty much impossible to ever stealth in a crowded area. Sneaking across the rooftops above a crowded bazaar or encampment? Let me roll 20-30 opposed checks to see if one of the people hear you. Using contested checks as default makes hiding from large groups near impossible and very time consuming. That said contested checks still happen, whenever you use your action to look for someone, you get to roll, furthermore I would assign any person on watch would probably be doing this constantly.
What limits are there to passive perception?
It is limited to what it can see passively. If there is a secret compartment behind a picture hanging on the wall, you cannot see through the picture.
PHB p178 said:
For example, a key is hidden beneath a set of folded clothes in he top drawer of a bureau. If you tell the DM that you pace around the room, looking at the walls and furniture for clues, you have no chance of finding the key, regardless of your Wisdom (Perception) check result. You would have to specify that you were opening the drawers or searching the bureau in order to have any chance of success.
You will never find that key with passive perception without actually mentioning you are going to look through the bureau. Even if your passive perception is 20 higher than the DC for the key. Passive perception doesn't look through walls and furniture. The problem is most DM's handwave the fact searching is supposed to be limited to the specified action. And just allow a search roll to reveal every single search DC listed in the room. When you apply this shortcut to passive perception, you create the unholy monster which is why people think it is too powerful.
Finally here is a news flash for many people: FEATS ARE POWERFUL. The healer feat allows you to heal 6-11 health on each member of the party each short rest, at level 1. For comparison that means a level 1 fighter with the healer feat can heal 42 HP per SHORT rest in a level 1 party. Compare that to the life cleric, who with a +3 modifier could heal 7-14 hp twice, or 21 HP per LONG rest. That's right, for straight potential healing done, a feat will allow potentially double the amount of healing that a class dedicated to healing can do, and recharge on a short rest instead of long one. Do I even need to mention Sharpshooter or Great Weapon Master? Lucky? Seriously, playing with lucky is basically cheating, but using the RAW and a limited amount. "Oh no nevermind the crit you just hit me with, let me cancel that without even using a reaction." When you compare how powerful these other feats are, Observant isn't some special outlier. Its just another feat that is situationally very powerful.
/endrant.