02/10/2024
Please welcome my first post on real estate. I hope you will find it interesting and I would be pleased if you shared it with your friends. If you would like to read on a real estate topic you’re interested in, please leave a comment.
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Waiving Contingencies?
Contingencies are like safety blankets in real estate. They allow you to back out of a deal if certain conditions aren’t met. The typical contingencies you might encounter are appraisal, home inspection, mortgage or sale of a prior home.
When you decide to waive your contingencies you deliberately remove certain protective clauses from your purchase offer in order to make it more attractive to sellers, which increases risks. When you already have the financial assets for the purchase - an all cash offer - you can waive the financial contingencies, which increases your chance to win a bidding war. Waiving the inspection contingency means you are committed to the purchase regardless of the condition of the property and won’t back out of the deal even if you discover any issues during the inspection period. In this case the buyer should be prepared to cover all repairs on the property by negotiating a discounted purchase price. This situation might work for certain fixer uppers, where the purchase price is discounted to cover the home remodel, or if the buyer is an expert in this field who doesn’t need any further inspections besides of their own. Don’t forget, sellers’ disclosures are documents handed down from homeowner to homeowner providing information about the property’s condition, history and other relevant details. They are helpful, but don’t substitute contingencies. Last, but not least, if you waive the appraisal contingency it means you are committed to the purchase even if the appraisal value comes back lower than expected.
So should you waive your contingencies and rely solely on the sellers’ disclosures? My answer would be no though every situation is different. In a sellers market more buyers intend to skip some or all of their contingencies to sweeten up the deal, but in the long run it can be very risky and potentially costly. According to the NAR Realtors Confidence Index Survey of December 2023 24% of home buyers waived inspection contingency and flat from one year ago. As for the appraisal contingency, 15% of buyers waived it in December 2023, which was 18% in December 2022. It means that more than three quarters of the buyers made a successful purchase deal keeping their inspection contingencies and 85% of the buyers with using appraisal contingency.
Your real estate agent can help you identify the most important contingencies to include in your contract and advise you on how to make your offer more attractive to sellers without compromising your financial security or peace of mind.
