Competing with All Cash Offers: Which Contingency Waivers are Worth the Risk?
Across the country, houses are selling quickly, and prices are steadily rising, and many home buyers are losing bidding wars to buyers with all-cash offers. For couples like Alissa Resnick and Brett Banhazl, the fear of missing out makes the idea of presenting a non-contingent offer appealing.
Resnick said in the article How Do You Compete with Home Buyers Who Can Pay in All Cash? “We were seeing the cost of houses increase even in the couple of months that we were looking, and we were worried about getting priced out if we didn’t get something quickly.”
While a non-contingent offer can increase your chances of snagging the home of your dreams, it’s not without risk.
There’s no doubt that a clean, non-contingent offer, will be more appealing to sellers. However, contingencies are in place to protect both parties during a real estate transaction so waiving these protections can open you, as a buyer, up to some costly consequences. Your REALTOR® should be able to help you decide which contingency waivers, if any, are right for you.
Appraisal Contingency – Low Risk
An appraisal contingency gives buyers the ability to walk away from the deal if the property appraises for lower than the price of the bid. They can do this without losing earnest money. If you waive the appraisal contingency and the home appraises for less than your bid, it’s possible your financing won’t come through. In this case, you’ll have to walk away from the deal, and you’ll lose your earnest money. However, in August of 2020, contracts terminated due to an appraisal issue accounted for just 1% of terminated transactions that month, according to a study conducted by the National Association of REALTORS® (NAR).
Financing Contingency – High Risk
A financing contingency typically gives buyers 30 to 60 days to secure a loan. If, as a buyer, you waive the financing contingency, you put yourself at risk in a variety of ways. If your loan is denied you may have to deal with legal ramifications when you back out of the contract. You will also lose your earnest money.
Home Inspection Contingency – Medium Risk
A home inspection contingency allows buyers to pull their offer or negotiate the price if the inspection shows serious and costly issues with the home. When you waive the inspection contingency you may find yourself dealing with costly and unexpected repairs down the line. Home inspections can reveal small issues like broken outlets and large issues like mold or water damage that may not be immediately apparent.
To reduce this risk, but still present a strong offer, you can conduct a pre-inspection. You’ll be on the hook for the cost of the inspection and any issues that come up, but you’ll have peace of mind knowing precisely what you’re getting yourself into.
Home Sale Contingency – Low Risk
A home sale contingency allows a buyer to back out of the deal if their current home doesn’t sell within a set time frame. The good thing about buying in a hot real estate market is that you’re also selling in a hot real estate market. When properties are moving quickly, you shouldn’t have to worry about your home sitting on the market for a long time and it should be fairly safe to waive the home sale contingency to strengthen your offer.
Title Search Contingency – High Risk
A title search contingency will uncover who actually owns the home and if there are any liens on the property. Without this contingency, you assume the responsibility for the seller’s debts, and you open yourself up to legal trouble associated with the ownership of the property.
Your REALTOR® can help you decide what, if any, contingency waivers are appropriate for your specific situation. There are ways to make your offer stand out without waiving contingencies at all. Here are a few:
- Ask the seller what their “ideal offer” entails.
- Start with your highest and best offer.
- Get pre-approved for your home loan.
- Conduct a home inspection but offer to buy the home “as-is.”
- Be flexible with your closing and move-in timeline.
- Offer to pay a portion of the seller’s closing costs.
- Offer more earnest money.
- Have an inspector ready to go to increase the turnaround time involved.
Going up against all-cash offers can be disheartening for homebuyers in a hot real estate market. Remember that contingencies are there to protect you, so carefully consider the possible ramifications that may occur should you chose to waive any number of these common contract contingencies. An experienced real estate agent can help you decide which waivers are really worth the risk.