If you’re like many people, you know that the real estate market in Scottsdale is pretty hot right now. Purchasing a home can be very competitive, and you may have heard about people waiving real estate contingencies in order to get their offers accepted. But is that a good idea? This guide explains.
Should You Waive Contingencies in a Hot Market?
Check out what you need to know about waiving contingencies:
- Understanding what contingencies are
- The risk of waiving a home inspection contingency
- The risk of waiving a financing contingency
- The risk of waiving an appraisal contingency
- The ultimate question: should you waive contingencies?
Here’s a closer look at each.
Understanding What Contingencies Are
Contingencies or conditions in your real estate purchase contract that must be met in order for the deal to move forward. Essentially, they’re safety net for buyers and sellers. They protect both sides if something goes wrong during the transaction, providing an exit from the contract. For buyers in particular, they can provide an added layer of protection. That’s because a contingency allows a buyer to back out of a deal without losing their earnest money deposit, which can be pretty substantial in today’s market.
Some of the most common contingencies involve home inspections, financing and appraisals.
The Risks of Waiving a Home Inspection Contingency
A home inspection contingency allows you to get a home inspection and use the results of that inspection to back out of the deal or ask the seller to make repairs or give you other concessions. However, waiving this contingency may make your offer more attractive to a seller because it means you’re willing to buy the home as is and can’t negotiate repairs. If issues come up after the purchase, they’re on you, not the seller.
The Risks of Waiving a Financing Contingency
A financing contingency protects you if your loan falls through. If you waive it and for some reason you can’t secure financing, you’ll lose your earnest money deposit and still be obligated to purchase the home.
The Risks of Waiving an Appraisal Contingency
A home appraisal contingency ensures that the home is worth what you’re paying for it. Usually, this contingency protects you if an appraisal comes back low. For example, if you offer to purchase a home for $550,000, but the appraisal comes back and says that it’s worth only $500,000, you can back out of the transaction because your lender will most likely only allow you to borrow the homes appraised value. In this case, that’s $500,000. The other $50,000 would have to come out of your pocket. However, if you waive the home appraisal contingency, you agree to come up with the additional money if the home appraises low.
The Ultimate Question: Should You Waive Contingencies?
Whether or not to waive contingencies is a personal decision that depends on your risk tolerance, the local market and the specific home you’re interested in. If you’re considering waiving contingencies in your real estate transaction, you should talk to your real estate agent about your options. You may not need to waive certain contingencies. And even if you do need to waive contingencies to make your offer more attractive to sellers, there may be ways to protect yourself in the event that something unexpected comes up.
FAQ About Waiving Contingencies in a Hot Market
Here are some frequently asked questions about waiving contingencies in a hot market. If you don’t see the answers you’re looking for here, please call our office. We’re here to help.
What are some other types of contingencies I should be aware of?
Besides the ones mentioned, other contingencies could include insurance contingencies, title contingencies, and sale contingencies.
If I waive the home inspection contingency, can I still get a home inspection?
Yes, but you won’t be able to negotiate repairs or back out without losing your earnest money if issues are found.
What happens if I can’t cover the difference for a low appraisal?
If you can’t cover the difference and don’t have an appraisal contingency, you could be in breach of contract and lose your earnest money.
Can I waive a contingency after the offer has been accepted?
Typically, contingencies need to be waived in your initial offer. Talk with your real estate professional to understand your specific situation.
Is it possible to partially waive contingencies?
It’s possible in some cases. For instance, you might waive the home inspection for minor repairs but maintain it for major issues.
Waiving contingencies in a hot market can be a double-edged sword. It might give you the competitive edge you need to land that dream golf course home in Scottsdale, but it also increases your risk. Weigh these risks carefully with your real estate professional to make an informed decision.
Are You Buying a Golf Course Home for Sale in Scottsdale?
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The Matheson Team – RE/MAX Fine Pro