Facing bidding wars, more homebuyers are waiving contingencies
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Rachel Mull started shopping for a house in Silver Spring, Maryland, last December and quickly found herself in a bidding war.
“It turns out that there were seven offers on it, and at least three of them had no contingencies,” she said.
Contingencies allow a buyer to renegotiate or even back out of a deal without losing his or her earnest money if, say, the house appraises for less than the sale price or the inspection turns up toxic mold or faulty wiring.
The competition has only heated up since. This week the National Association of Realtors said existing home sales fell in March, for the second consecutive month, due to a severe lack of homes on the market. The median sale price reached more than $329,000, up 17% from the same time last year. After losing out a few more times, Mull is about to make an offer on another house and waive the usual buyer protections.
“My understanding is that sellers are basically only accepting contracts if they have no contingencies,” she said. “They want a guaranteed closing.”
No-contingency deals aren’t unusual in perpetually tight markets like the San Francisco Bay Area, said Sheri Madden with Red Oak Realty in Berkeley, California.
“It’s been a trend for the last several years,” she said. “In fact, it’s almost like a requirement because if you have a contingency, your offer will go in the ‘no’ pile.”
Now buyers are waiving contingencies even in historically softer markets.
“I’m writing an offer today, we’re in a multiple-offer situation, we have reduced the inspections down to merely electrical,” said Seth Task, with Berkshire Hathaway in the Cleveland area. “I’ve written offers where there’s no inspection contingencies. I’ve written offers where there is only a foundation or structural inspection.”
It’s risky, he said, and he would never advise it.
“But when a seller says, ‘We’re only looking at offers with no inspection contingency,’ what are you going to do?” Task said.
Broker Akil Hameed in Shaker Heights, Ohio, just beat out 15 offers for a condo on behalf of a client by bidding $15,000 over the asking price, waiving the appraisal contingency and agreeing not to request any repairs.
“You’ve got to get creative,” he said. “But from a liability perspective, it scares me. I just don’t want to see a lot of buyer remorse later.”
Hameed also worries the practice perpetuates inequity by squeezing out prospective buyers who can’t afford to take as much risk.
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