Buyers are happy to know that, in most cases in today’s market, they can now include a contingency in their offer after a couple of years of a no contingency market. The most common contingencies that give buyers confidence are the financing contingency, an appraisal contingency, and a home inspection contingency. Many others can be included depending on the situation or the specific house. These can be included if needed.
The financing contingency is a protection for the buyer, allowing them to secure a loan. Sellers will always demand to see a pre-approval letter to minimize the risk of this contingency. Buyers are wise to have their financing in place so as not to have to void the contract later in the process. To prevent this, buyers should submit all their documentation upfront and be honest with the lender about any financial issues.
The appraisal contingency protects the buyer from overpaying as the financing institution will have a certified appraiser visit the property so they, the lender, can protect their interests and yours. Should the property not appraise at the sales price, the buyer can open up the contract to renegotiate the sales price. The seller may agree to lower the price, or you might meet in the middle or the buyer can come up with the cash. If you cannot come to an agreement on the price, the buyer can void the contract.
The home inspection contingency can cover additional inspections of specific parts of the home, such as the chimney or the roof. If the inspector uncovers a structural defect, then the inspector would recommend that a structural engineer be brought in. The inspection is not for cosmetic issues. It is a review of the home’s condition on your inspection date. If you find defects that will cost an amount you were not expecting or safety issues, these are legitimate requests to the seller. Depending on the contract in the jurisdiction you are in, you can negotiate with the seller to fix these items or give you a credit. If you do not agree on the repairs or credits, in most areas, you can void the contract.
However, buyers beware. There will always be properties that are exceptional where bidding wars will happen, and it will be tough to win without waiving contingencies. Preparing for those instances by nailing down your financing with a reputable lender, having a pre-contract inspection, or waiving the appraisal based on confidence in the price are all things that you should be prepared for in that instance.
The Bottom Line
The market has returned to a much more normal and balanced market where we aren’t seeing bidding wars on every property, and buyers can negotiate. However, as always, be prepared that some properties, especially in certain price points and neighborhoods where inventory is low, will still escalate and require removing contingencies to win.
Questions about offer contingencies and what they mean? Contact us below!