Waiving contingencies: The risky real estate gambit that could make or break your deal
In today’s competitive real estate market, many home buyers are resorting to risky manoeuvres to get their offers accepted. One increasingly common tactic is waiving contingencies – but this gambit could make or break your deal.
What are contingencies?
Contingencies are conditions written into an offer that must be met for the purchase to move forward. Common contingencies include:
- Home inspection contingency – Gives the buyer time to have the property thoroughly inspected and the right to cancel if major issues are found.
- Appraisal contingency – Allows the buyer to back out if the home appraises for less than the offer price.
- Loan contingency – Let the buyer walk away if they are unable to secure financing by a set date.
- Sale contingency – Dependent on the buyer first selling their current home.
Why are buyers waiving contingencies?
With housing inventory at record lows, buyers are getting desperate. By waiving contingencies, they hope to make their offer more appealing to sellers. This signals that the buyer is serious, financially secure, and willing to take on risk. Sellers often favour offers without contingencies because they seem less likely to fall through.
Additional reading: Exclusive rights vs. multiple property agents: Which is better?
The Dangers of Waiving Contingencies
While waiving contingencies can help your offer stand out, it also exposes you to significant financial risk:
- Waiving the inspection contingency means you could be stuck with expensive hidden repairs or flaws.
- Without an appraisal contingency, you risk overpaying if the home appraises for less than your offer.
- Waiving loan and sale contingencies leaves you vulnerable if you ultimately can’t secure financing or sell your current home in time.
- In a worst-case scenario, you could forfeit your earnest money deposit and have no home to move into.
How to Protect Yourself
If you decide to waive contingencies, take steps to mitigate the risk:
- Have the home thoroughly inspected before making an offer, so you are aware of any issues.
- Build a cushion between your offer price and expected appraisal value.
- Get pre-approved for a mortgage and have a backup plan if your current home doesn’t sell in time.
- Negotiate an option period to address any deal-breaking problems that arise.
The bottom line
Waiving contingencies is risky, but can help your offer stand out. Proceed with extreme caution, get professional guidance, and take steps to limit your exposure. With the right preparation, this gambit could pay off with your dream home.
