What are Waived Contingencies and Should You Waive Them?

The home buying market is exactly that, a market, and multiple people can have their eye on the same home as you. When this situation arises, you, as the buyer, need to consider what you are willing to do to make yourself the more attractive option for the seller, and it doesn’t always involve offering the highest purchase price. Almost all sales begin with a list of contingencies by default, and the buyer who waives them ends up looking appealing, but it can also involve taking on the buyer’s risk.  

What is a Contingent Offer?

A potential home buyer makes a contingent offer and includes a list of conditions for the seller to meet before the buyer agrees to the purchase. If the terms are not met, the buyer can back out of the sale with no repercussions and is also entitled to a refund of any earnest money put down. The terms of these kinds of offers protect the buyer if something comes up that causes them not to want to follow through on the purchase, so they are often considered a smart move, but they can also hold up the sale timeline. If one buyer makes an offer with fewer contingencies than another, a seller may be more willing to accept the more lenient terms. 

What is Contingency in Real Estate? 

There are three types of contingency in real estate, and they all serve the purpose of protecting the buyer depending on their situation. 

Appraisal Contingency

This contingency arises when the buyer is dependent on a loan to finalize the purchase of a home. The buyer will make an offer, and then their lender will come out to the home and give their appraisal of its value. Including an appraisal contingency in the offer contract means that if the lender considers the home’s value to be less than the offer amount, the buyer can back out of the deal. This is important because a lender will not be able to loan out any amount larger than their calculated appraisal amount. If this contingency is not included, the buyer will be locked into their offer and need to come up with the difference themselves — if the bank is still willing to loan up to the appraisal amount. In most cases, the bank will withdraw their offer because they do not anticipate that the buyer will be able to cover the additional cost and pay back their loan in a timely matter. 

Inspection Contingency

An inspection contingency protects the buyer if the home needs repairs that make the value of the home inconsistent with the initial offer. With this contingency included, the buyer can gauge the home inspection results to determine if they want to negotiate repairs, lower their offer amount, or walk away from the home entirely. The buyer must specify what kind of inspection the offer is contingent on — a general home inspection or specialized ones like mold or radon detection — to cover those repairs in negotiations. If this contingency is waived, the buyer cannot hold the seller responsible for any defects found after the sale is finalized, and they are obligated to purchase the home as-is. In some cases, you are still entitled to an inspection after you make an offer to gather information, and you may be allowed to back out of the sale entirely if a major issue is revealed. 

Financing Contingency

The financing contingency stipulates a buyer will follow through on purchasing a home, pending their own approval of various financing methods like a bank loan or a mortgage. This is different from an appraisal contingency because the finance options only consider the buyer’s own financial situation and don’t make a decision based on the value of the home to be purchased. This is probably the least attractive contingency to a seller because the timeline is variable, and many factors could cause the buyer to back out with no repercussions. The buyer is also entitled to a refund of any earnest money paid, sending the seller back to square one in their attempt to sell their home. 

When Do You Set Contingencies?

Contingencies are included in the contract offer you make on a home. They basically say that you will follow through and pay the seller the agreed-upon amount if none of the contingencies fall through. Your realtor is the most informed person to assist you in setting your contingencies and also helping you navigate which ones you can waive if you are competing with other offers on the home. 

Why Waive Your Contingencies?

It might make sense that the buyer with the highest offer will have the best chance at securing the home, but when that offer comes with contingencies, a seller looks around for the sure thing, even if it means accepting less money. All three types of contingencies can delay the sale of a home by weeks, sometimes months, and the seller is effectively losing money during this time. On top of that, every type of contingency allows the buyer to back out of the sale completely, so the initial high offer amount becomes irrelevant. 

Suppose you have the right information about the home and have reliable financing options. In that case, you can consider waiving certain contingencies to speed up the sale and make yourself the most attractive buyer. Try not to act on emotion and waive all your contingencies to ensure you get your dream home — these are serious contractually binding elements that lock you into the sale regardless of any defects found, or even worse if you can’t come up with the financing you need. If you go to the end and try to back out without contingencies in your contract offer, you leave yourself open to being sued by the seller

Should You Waive Your Contingencies?

Each type of contingency has its own set of factors to consider before you waive them if it is even advisable for you to pursue your purchase without certain ones in place. It all depends on your unique situation as a potential home buyer. 

Waiving Appraisal Contingency

If you are dependent on a loan where the lender needs to determine the value of a home before issuing the amount, a good realtor will not let you waive this contingency unless you have an overwhelming amount of information beforehand. If you can pay out of pocket for a pre-inspection or pre-appraisal to make your offer accurately and ensure that your lender will match it with the loan, then waiving an appraisal contingency to speed up the process might be possible. However, it still involves a high amount of risk. Most experts will strongly advise against this. On the other hand, if you aren’t attempting to purchase the home through an appraisal loan, this contingency is unnecessary, and there is no risk of waiving it. 

Waiving Inspection Contingency

This is often the most waived contingency due to two factors. Either information about the home’s condition is readily available, or most sellers allow buyers to conduct their own pre-inspection before making an offer. Including the inspection contingency simply allows you to negotiate repairs or lower the cost of the home, so waiving it doesn’t prevent you from making an offer based on your pre-concluded findings of damages or defects. If you are aware of the state of the home and realistic about the cost of repairs, this contingency can be one you choose to waive to push yourself up the list of buyers and close the sale sooner.  

Waiving Financial Contingency

If you are not using financing to purchase a home, you don’t need this contingency in your contract. You should not remove the financial contingency if you are using financing options. Unless you have a backup plan or two for coming up with the money you need to purchase a home, waiving this one can land you in some serious legal hot water when you either cannot pay the seller your offer price or you cannot pay off the debt from buying the home. Do not rely on the pre-approval status of a loan since so many factors can affect the loan amount or whether you will get it at all. 

You won’t need to compete aggressively to purchase your dream home in the best-case scenario, and the sale can happen on your terms. However, this is not always the case, so this information is useful if you find yourself in a seller’s market against other types of buyers who must rely on a contingency that you don’t need.