Non-Contingent Offers

We’re starting to see buyers make offers with no contingencies. We consider these offers to be quite bold, and buyers really need to understand what they sign up for when making such an offer.

An offer with no contingencies means that the buyer will buy the home no matter what happens during escrow; or they will forfeit their deposit. The standard contingencies that real estate contracts include are buyer investigation, appraisal, and financing. Let’s review them.

The buyer investigation contingency includes review of seller disclosures, and review of a home inspection. This contingency allows the buyer to learn about the house, and to make sure they understand the condition of the home. A buyer who waives this contingency is is basically agreeing to purchase the home no matter what comes up during inspections. If a seller provides an inspection to the buyer prior to agreeing to a contract this isn’t too risky, but without an inspection on hand, we don’t recommend making such a bold offer. Imagine discovering bad sewer pipes, a leaking roof, or unsafe electrical. The costs could be crippling, but a non-contingent offer creates no room for negotiation or walking away with little cost.

The appraisal contingency simply means a buyer will buy the home for the agreed upon price if it appraises at that value. If a buyer removes the appraisal contingency that means they are willing to purchase the home at the agreed upon price, whether or not is appraises at that price. Appraisals are one professional’s opinion, that often vary from what the buyer and seller have agreed upon. Imagine an Appraiser coming back with an appraisal $50,000 under the contract price. That’s a big number to make up with a buyer coming out of pocket to to make it happen. If a buyer is putting down a big down payment this won’t really come into play, but with a low dow payment a buyer should be cautious.

The financing contingency means that the lender will give their final approval on a mortgage well into the escrow period. Having no financing contingency means the buyer is agreeing to purchase the home even if the lender denies the loan. Imagine losing income, or a job, or the bank changing the terms while in escrow. A buyer in this situation would most likely need to purchase the home for cash.

Make sure you’re making an informed decision when making your offer. As always, you can rely on the professionals at Market Real Estate to guide you through the process!