Home Buyer Tip: Recommend Few or No Contingencies

 Understanding Contingencies in Real Estate Offers

Contingencies are a common feature in most real estate offers. These provisions in the purchase contract allow either party to back out of the deal if certain requirements are not met.  Both the buyer and seller must agree to these terms for them to be legally binding in the contract.

Common Types of Contingencies

There are several types of contingencies often included in real estate contracts:

• Financing: The financing contingency gives buyers a specific period to secure a mortgage. If they are unable to get financing within that timeframe, they have the right to withdraw from the purchase, and the seller can consider offers from other buyers.
• Inspection: An inspection contingency allows the buyer to have the property professionally inspected for structural or systems issues such as wiring or plumbing. If problems are discovered and the seller chooses not to address them, the buyer may terminate the contract.
• Appraisal: Most lenders require that the home’s value meet or exceed the sales price before approving a mortgage. An appraisal contingency lets buyers get a property appraised and, if the value is too low, renegotiate with the seller or walk away.  
• Some buyers need to sell their current home before buying a new one.  If the buyer cannot complete the sale of their existing home within a set timeframe, this contingency allows them to cancel the contract without penalty.

The Impact of Contingencies on Offers

Contingencies can make an offer less appealing to the seller because they increase the chance that a sale may not close. The more contingencies an offer includes, the weaker it becomes from the seller’s perspective. In competitive markets, buyers may opt to waive some contingencies to strengthen their offer and increase the likelihood of acceptance.

Risks of Waiving Contingencies

Buyers must assess risks before waiving contingencies.  For example, skipping the home inspection contingency could mean discovering costly repairs only after the sale is final. Waiving the appraisal contingency may jeopardize the buyer’s mortgage approval. A buyer who cancels without a contingency risk losing their earnest money deposit.  It is important to weigh the benefits and risks before making this decision, and assistance is available to help buyers evaluate their options.