Shopping for a new home is exciting, exhausting and frustrating. But the feeling you get when you lay your eyes on your dream house is unmistakable. It’s the realization that this is the home you’re meant to have.
It’s easy to get caught up in emotions, especially when it comes to buying a home. But if you’re not careful, your dream house can quickly become a nightmare.
The risks of skipping contingency clauses
Contingency clauses are conditions in a real estate purchase agreement that must be fulfilled for the sale to proceed. If a contingency isn’t met, the buyer (or seller) has an opportunity to walk away from the sale without penalties.
The most common contingency clauses include:
- Home inspection: If significant issues are found during the inspection, you can either walk away or try to negotiate the asking price.
- Financing: The contract is contingent upon securing a mortgage.
- Appraisal: Ensures that the property is valued at the agreed purchase price or above.
- Sale of your current home: You must sell your current home before you can proceed with the purchase.
While these clauses can offer peace of mind to the buyer, the seller may perceive them as hurdles. Some people may forgo the contingency clauses to make their offer more attractive, but there are risks involved in that strategy, such as:
- You can get stuck with major repairs if you buy the property without a home inspection. The inspection might have uncovered a leaky roof, faulty wiring or a crumbling foundation. In addition to a mortgage, you would need to also come up with the money to pay for the repairs.
- You could be in a financially vulnerable position if you can’t get a mortgage at favorable terms. You may need to find alternative funding or risk losing your earnest money (a good-faith deposit).
- If the property appraises below your purchase price, your lending institution likely won’t loan you the full amount. You would need to cover the difference out of pocket.
Buyers may consider waiving contingencies when it’s a competitive market, and they have multiple offers. However, before proceeding with any real estate transaction, it’s always advisable to discuss the issue with a legal professional who can review the contract and details. They can evaluate the situation and determine if skipping the contingency makes sense. They can also guide you in mitigating any risks.
