Is it Smart to Waive Contingencies When Buying a Home?
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We get it … you want a house and are willing to do just about anything to make your offer stand out. But how far are you truly willing to go?
We’re seeing home buyers getting more and more competitive when it comes to making an offer on a house. Waiving all contingencies has now become standard practice in many housing markets just so home buyers can stand out in a crowded market of multiple offers per home.
Even if you’re at your wit’s end with trying to find a home in the current real estate market, it’s important to know the risks associated with waiving contingencies. You don’t want to solely act on emotion just to sweeten your offer!
A real estate contingency refers to a condition or action that must be met before the contract becomes binding.
Contingencies are set up to offer protection for both the buyer and the seller during a real estate transaction. Here are the top contingencies found when buying or selling a home:
- Financing contingency: This gives the buyer more time to lock in mortgage financing to purchase a property.
- Home sale contingency: This allows the buyers time to finalize the sale on their current property (many people use the money from the sale of one home to put toward a new home).
- Inspection contingency: This lets the buyer know if there are any major (or minor) issues with the home before they purchase it. Keep in mind, some lenders won’t offer financing on a home without an inspection.
- Appraisal contingency: This allows home buyers to back out of their contract if the home is appraised for less than the purchase price in the contract.
- Title contingency: If there are any issues with the title (i.e., lien or ownership dispute), this allows the buyer to walk away if the problem cannot be resolved before closing.
The Big Question: Should You Waive These Contingencies?
The appraisal contingency is a particularly tricky one in this competitive market. Many potential home buyers are choosing to waive the appraisal to provide a more desirable offer. The goal of the appraisal is to make sure the home values at (or near) the purchase amount.
We’re seeing appraisal contingencies being waived all the time in today’s market. Just know that if you decide to do this, and the home you put a contract on appraises $75,000 less than the asking price, you will be responsible for that price gap. You can choose to pay $75,000 cash or reach out to your Home Loan Specialist to help you with an appraisal gap strategy.
We’re also seeing many home buyers go with bridge loans right now to waive the home sale and some financing contingencies. A bridge loan can help you put a strong purchase offer and provides flexibility when shopping for a new home since you can close on that new home before selling your current home. Once your home sells, you’ll pay off the bridge loan with the proceeds and then be left with the current mortgage on that property.
Bridge loans typically must be repaid within 6-12 months, and you'll still be required to pay interest, closing costs, and any additional administrative fees.
The last contingency we’re seeing a lot of home buyers waive is the inspection contingency. While home buyers are waiving this option, many are still opting to move forward with the house inspection (without making the sale contingent on the outcome). People still want to see if there are any structural, electrical, or roofing issues with the home so the proper repairs can be made.
Key Takeaway:
Make sure you’re working with a professional Realtor® and Home Loan Specialist who understands the pressures of the current market we’re in. It is riskier to waive some contingencies over others, and it’s better to know what all your options are before you get in over your head, just to seal the deal in a bidding war.
Churchill Mortgage is committed to helping you get the smartest mortgage for your situation to ultimately help you save time and money because life is meant to spent living, not stressing out about your home loan!
