Should buyers ever remove all contingencies up front?

Bob Ravasio — August 18, 2014, 12:30 pm

For Marin Home Buyers: Should I Waive All of the Contingencies?

The number of all cash buyers continues to amaze us, and the best homes in the most sought after areas are still seeing all cash offers. But what’s new in this market is not just the number or size of overbids, but the number of buyers who are waiving contingencies completely when they write an offer.

Many new listings now have all of the inspections done up front, so a buyer can factor that into the offer they are writing. When that is the case, we have always advised buyers to write in a short contingency period, say 5 days, to walk through the property with the inspectors to review any issues so they know what exactly they are getting into. They can also get a second opinion if they want to. To make the offer more attractive however, many buyers will now accept the inspections, and waive the contingency to inspect the home further completely. Some buyers will pay to have a walk through with the inspector prior to the offer date, so they can confidently remove contingencies.

It is risky, but if the inspectors are reputable, and the walk through takes place with the inspector, we believe it is an acceptable practice.

What is much riskier, and happening with more frequency though, is the number of buyers who are obtaining a loan, and then waiving the loan contingency as well as the inspection contingency. So now they have waived the inspection contingency, the loan contingency, and the appraisal contingency, and  are putting down 3%. If anything goes wrong, the buyer stands to lose their entire 3% deposit!

This is great news if you are the owner of the house. The seller has the number they want, won’t lose any more in the contingency removal process, and has a buyer who is now extremely motivated to close the deal. Buyers also think it is great news, because if they were the offer that prevailed, they just got ownership of a house in a very competitive market.

What could possibly go wrong in this scenario? Well, a lot, actually. We have yet to recommend to a buyer that they do this in order to get a house. Is there risk it won’t go through? Of course, there always is even if it is not huge. When putting say 50% down, and the loan to value ratio is small,there is little risk it won’t work. But there is still risk…and not risk that we recommend our clients take.

We received three offers on the listing below at 23 Sunrise Lane in Larkspur. Perched on Christmas Tree Hill with beautiful views of the Bay, it will close next week.

23 Sunrise Lane, Larkspur

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