There are several important documents that will play a big role in any home purchase, and one of these is the actual contract that buyers and sellers both agree to during a sale. Within this document are a number of distinctly important sections, and one category that all buyers need to be aware of here is the possible presence of contingencies.
At Altius Mortgage and our partners with Mortgage Ogden, we’re happy to help with any and all elements of your purchase contract with a home seller, including contingencies, for any of our home loan products. What are these, and why do some buyers consider waiving some of them? Furthermore, why is waiving contingencies sometimes a risky proposition that you should think long and hard about before proceeding with? Here’s a simple rundown.
What Are Home Purchase Contingencies?
For those just learning about home buying, contingencies are conditions that must be met before a sale can be finalized. They exist to protect buyers in the event that something goes awry during the process, and can cover a wide variety of potential issues.
Essentially, any contingency in a purchase contract will state that the buyer has the right to back out of the deal if a particular condition is not met. This might be something like the home failing a professional inspection, the buyer being unable to secure adequate financing, or even the seller being unable to provide clear title to the property.
As you can see, these contingencies exist as a way for buyers to back out of a deal if they’re not happy with the property for one reason or another. They exist to protect buyers and give them an “out” in case something goes wrong, so that they’re not stuck with a property that doesn’t meet their needs.
Why Would You Waive Contingencies?
With all of that said, there are still some buyers who choose to waive their contingencies when they’re trying to buy a home. The two most common reasons for this have to do with either trying to speed up the process or making themselves more attractive to sellers.
In a fast-moving market, it’s not uncommon for buyers to be competing against other interested parties. In this situation, some buyers will waive their contingencies in order to make their offer more attractive to the seller. After all, if another buyer is offering the same price but theirs is a “cleaner” offer with no contingencies, that might be the one that the seller goes with.
Furthermore, there are some situations where a seller might be more inclined to accept an offer if the buyer is willing to waive their contingencies. This is often the case when a seller is trying to buy another property and needs to sell theirs quickly in order to do so. In this case, they might be more likely to accept an offer from a buyer who doesn’t have any contingency conditions.
However, it’s important to remember that just because a seller is more likely to accept an offer without contingencies doesn’t mean that they have to do so. In fact, most sellers will still prefer an offer with contingencies over one without them, since it gives them more protection in the event that something goes wrong.
In addition, there can be some serious risks to buyers if they choose to waive contingencies. Let’s look at some of the most common contingencies, plus why waiving them is something you should be thinking hard about and considering in detail before moving forward.
One of the most common and well-known contingencies in a home purchase contract is the inspection contingency. This gives buyers the right to have a professional inspector come and check out the property before finalizing the deal, in order to look for any potential problems that might need to be addressed.
If you’re waiving this contingency, it means that you’re agreeing to buy the property “as is” without having it inspected first. This might not seem like a big deal, but it’s important to remember that inspections can sometimes turn up some serious problems that need to be fixed.
For example, an inspector might find that the home has major structural damage, or that there are significant issues with the electrical system. If you’re not aware of these problems before you buy the property, you could be in for a very nasty surprise (and a significant financial one) down the road.
Another common contingency that buyers will include in their contract is an appraisal contingency. This gives them the right to have the property appraised by a professional appraiser, in order to confirm that the purchase price is fair and in line with the property’s actual market value.
As with the inspection contingency, waiving this contingency means that you’re agreeing to buy the property without having it appraised first. This can be a risky proposition, since there’s always the possibility that the property is worth less than you’re paying for it.
If this turns out to be the case, you could end up being “upside down” on your mortgage, which means owing more to the bank than the property is actually worth. This can make it very difficult (or even impossible) to sell the property later on down the road.
The financial contingency is another one that’s important for buyers to be aware of. This contingency gives them a way out of the deal if they’re unable to get approved for a mortgage or other type of financing to buy the property.
Without this contingency, you’re essentially agreeing to go through with the purchase even if you can’t get the financing you need. This can be a very risky proposition, since there’s always the possibility that you won’t be able to get approved for a loan (or that you’ll only be approved for a loan with terms that are less favorable than you were expecting).
For more on contingencies in a home purchase and why it can be risky to waive them, or to learn about any of our mortgage services, speak to our team at Altius Mortgage today.