If you’re trying to buy a house in today’s market, you know that you need to go to great lengths to get your offer considered. You’ll likely be competing against multiple offers, and sometimes the highest price isn’t enough.
Many homebuyers are waiving contingencies that are built into the real estate purchase contract as a way to make their offer more enticing to the sellers. These contingencies, like the appraisal or financing contingencies, are included to protect the buyers and their earnest money. Before you go ahead with this, let’s look at what this could mean for you.
What Is a Contingency?
A contingency is a clause in the purchase offer which allows the buyer extra protection and the ability to walk away from the transaction without penalty. The most common contingencies are inspection, appraisal, financing, and selling an existing home before closing on the new house.
Sellers would prefer not to have the sale contingent on, say, a home inspection where the buyer can decide that they want items to be repaired or cancel the transaction. An offer that leaves out these common contingencies has a better chance of closing without any addendums to the contract and fewer headaches for the seller.
What’s At Stake?
Waiving a contingency doesn’t mean you have to close on the home regardless of what is discovered during the escrow period. Basically, your earnest money is at stake if you waive a contingency.
If you waive the inspection contingency, you can still have an inspection for your own benefit, you just can’t walk away with your earnest money if serious issues are uncovered. If you waive the appraisal contingency, your lender will still require the appraisal to take place to get loan approval, you just can’t walk away with your earnest money if the home does not appraise for the agreed-upon purchase price.
What To Consider
Before waiving contingencies, you need to consider a couple of scenarios:
- Can I afford to lose my earnest money if something falls through?
- Am I okay with covering the cost for any repairs that may be needed on the home?
- Am I positive my financing will be approved?
- Am I able to bring cash to the closing table in the event the appraisal comes in lower than the purchase price?
Something else to consider is that the amount you deposit in earnest money is negotiable. Of course, a seller would be foolish to accept an offer that waives contingencies but only puts down a small earnest money deposit. It’s more likely that you’ll have to deposit upwards of $1,000 and waive contingencies for this to beat out other offers.
Understandably, you don’t want to miss out on what may seem like the perfect home, but you also don’t want to get yourself into a mess. Every situation is different, so there is not a one size fits all answer here. Make sure to discuss your options thoroughly with your agent to make sure you understand what’s at stake.