You’re in a bidding war and things are getting down to the wire. Should you waive contingencies to gain a competitive edge? Contingencies are supposed to protect you, so absolutely sure you don’t need those protections before you waive contingencies to get an offer accepted.
Why you need contingencies
Contingency clauses are designed to protect you against unexpected reasons you might need to get out of a home purchase. The main goal is making sure that you get your earnest money back, as that is what is generally on the line.
Some contingencies may be instituted by your lender and cannot be waived, or would entail that you shoulder the risk that your lender isn’t willing to absorb. Common contingencies include:
- A requirement that the home appraises at or above asking price
- A requirement that the home inspection returns a satisfactory report
- A requirement that your financing comes through
If any contingency isn’t met, you can walk away and get your earnest money returned.
Will sellers accept contingencies?
The above contingencies are pretty standard. Most sellers will agree to them. The exception is in a very competitive market, when there are a lot of people willing to enter a bidding war, or if the seller sees you hanging on to contingencies very late in the home purchase process instead of clearing them one by one throughout the process. If a seller wants you to waive any contingencies, you need to think long and hard, first.
When you can waive a contingency
Waiving contingencies is usually a bad idea. However, if you aren’t very worried about the reason behind the contingencies (in other words, you don’t think the home inspection will turn up anything bad, you’re confident the home will appraise well, and you’re rock solid on your financing with an underwritten approval already inn hand) then you may choose to waive contingencies.
Consequences can include having to fix problems with the home after purchase, having to come up with a larger down payment due to a low appraisal, or losing your earnest money if financing falls through and you can’t pay cash for the home.
Bottom line, try to keep contingencies. If you’re asked to waive contingencies, try to negotiate and only have one or two instead of all of them. Sometimes it’s smarter to walk away from a home than to stick your neck too far out.
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