When you make an offer on a home, it’s standard to throw in some contingencies – telling the seller that if the home isn’t up to par for a variety of reasons, you have the right to walk away from the deal – with all your cash in your hand. But as the housing market has rebounded, buyers are getting more competitive – more and more are waiving those contingencies, or protections, in order to speed the deal through to closing. However, it is riskier to waive some contingencies than others. Below are some examples. (Keep in mind that everything depends on your local market, your personal situation and your tolerance for risk.)
Contingency : Early move-in
Closings can be delayed, so many buyers ask for the right to move in their possessions early. But it isn’t something sellers or seller’s agents love. There are too many unknowns if the deal doesn’t close. If you move in early, you’ll lose some of your negotiating power. It’ll be much harder for the seller to believe you’ll walk on the deal if you’ve already moved all your stuff in. And if the deal falls through, you’ll face eviction from the seller and scramble to find a short-term living arrangement. Bottom line is moving in early could potentially do more harm than good, so waiving this contingency has minimal risk.
Contingency : Homeowner association rules
The homeowners association rules contingency lets you get out of the deal if you discover the restrictions don’t work with your lifestyle. We do not recommend getting to this point on your path to homeownership without asking the basics of the home you’re trying to buy – including HOA rules. Ask for a copy and read it before making an offer. Bottom line is that waiving the HOA contingency seems pretty low risk.
Contingency : Financing
This contingency gives you the right to back out of the deal if your home financing falls through and waiving it could go very wrong. That’s because any number of things could happen before you loan’s been sent through underwriting. The lender could decide to lower the total loan amount, spike the interest rate, disqualify you from a certain loan, or a bunch of other situations. If you’re locked into a home offer and can’t hold up your end of the bargain, you could lose your earnest money. If you are paying in cash, however, you won’t need to worry about this contingency because you don’t need a lender. If you credit is spotless and you’re making at least a 20% down payment, you’re also in a better position to take this risk. Bottom line is to talk with your realtor and mortgage broker to find out how confident you should be in your financing.
Contingency : Appraisal
An appraisal is required by most lenders, and it can be useful to buyers trying to negotiate a price. But appraisals can be tricky. That’s because of number of factors can affect the outcome of an appraisal – the appraiser might rely heavily on the value of comparable homes that sold for mysteriously low prices, or perhaps he saw a house in less-than-ideal conditions. The appraisal value might not match your expectations, especially in a hot market where homes are selling for inflated prices. Bottom line is if you’re looking to woo a seller, you might want to skip the appraisal contingency, especially if you think it won’t change the asking price of the house. But be careful because your lender might not agree to a loan over the appraisal price, leaving you to foot the remaining cost of the home.
Contingency : Home inspection
The right to get a full, professional home inspection is a crucial contingency. Without a licensed inspector viewing the property, you can only guess what might be potentially wrong with the home, now or 10 years down the road. By waiving this contingency, you lose the right to make any requests for additional repairs or to run away before the deal closes. If you’re still convinced waiving this contingency is the only way to win the seller’s heart, try finding some neutral ground, like a general inspection contingency, which gives you the right to void the contract, but not ask for repairs. Bottom line is if you know you’re getting a fixer-upper and will have to make repairs anyways, you’re gambling big time by waiving this contingency.
Contingency : Clear title
If the opportunity arises to waive this one, just say no! You may not be able to waive a clear title search in your area. But if you discover you can, don’t. A title search will churn up all kinds of important information – like who actually owns the home and if there are any liens on the property. It might seem far-fetched but title problems happen all the time. Waive your right to it, and you might find that along with your new home, you’ve acquired thousands of dollars in liens. Bottom line is the risk is seriously very high.
Don’t forget to ask your realtor’s advice before waiving any contingency. All deals are unique, and only a pro who knows you and the market can tell you how to strike the best deals to own your dream home.
