In the current market where inventory levels are still near historic lows, home prices continue to increase and properties are selling over their list prices in cases with multiple offers. With these highly competitive conditions, many buyers are looking for ways to make their offers stand out and appeal more to sellers. One such strategy that has become very common is preparing offers with no contingencies. However, contingency-free offers come with risks that are important to understand.
First off, what are contingencies? Contingencies are clauses included in an offer that state that specific conditions have to be met for a deal to close. If the stipulated conditions aren’t met, buyers can break the contract without facing financial repercussions. They provide a way to protect buyers against some of the risks involved in purchasing a property. With contingent offers, if buyers decide not to go through with purchasing the home after signing the contract, they are allowed to recover their deposits if the stated conditions aren’t satisfied.
What are the most common contingencies? The most common contingencies protect buyers from the largest risks that come with purchasing a home, including: financing contingency, home sale contingency, appraisal contingency, title contingency, and inspection contingency. For instance, inspection contingencies protect buyers against buying properties that are later revealed to require major repairs or otherwise be in poor condition. Home sale contingencies give buyers more time to ensure the sale of their current homes, and appraisal contingencies allow buyers to rescind their offer if the appraised value of the property is lower than the agreed-upon sales price.
Why do contingency-free offers appeal to sellers? They appeal to sellers because they essentially guarantee that sellers will benefit from the deal. Either the sellers will receive the agreed-upon price for their home or they will get to keep the deposit that buyers give up by walking away from the property. But for buyers, waiving contingencies on their offers can often lead to serious buyer remorse either before or after the close of escrow, as well as significant legal consequences. For this reason, it’s important for buyers to fully understand the risks associated with their decisions before submitting an offer without contingencies.
Why is removing contingencies risky? Because contingencies are designed to protect the buyer and address areas of buyer due diligence, making offers without some of the traditional contingency rights—or offers without any contingencies at all—buyers essentially give up their cancellation rights. If, after having their contingency-free offer accepted, they run into circumstances or conditions that cause them to cancel their purchase of the home, they aren’t able to do so without breaching the contract and most likely losing their deposit.
If you are thinking of submitting a contingency-free offer, your real estate agent will be able to best prepare you for what to expect, fully inform you of the associated risks, and walk you through the process of considering all the potentially relevant areas of due diligence and conduct those inspections pre-contract.
How we can help: It’s not always easy to make your offer stand out in this highly competitive market. Although contingency-free offers have become a common practice, there are major risks that are important to understand and protect against. Our team is dedicated to helping buyers navigate this process and secure their dream home! Reach out to us anytime if we can help you with your real estate buying/selling needs at russellandtony@compass.com or 310.230.5771!
