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A common practice in today’s competitive real estate market has been to waive real estate contingencies when making an offer on a home. 

This can be an appealing thing to do to make your offer more attractive to the seller. However it is imperative to understand the different contingency clauses commonly found in a real estate offer and how they can protect you through the home buying process. 

Contingencies in your offer are there to protect you as a buyer during the process and waiving them could result in serious complications down the line. 

Should you need to back out of the agreement without these contingencies you would lose your earnest money deposit and there is potential of additional legal ramifications should the seller not be able to find another buyer.

5 Common Real Estate Offer Contingency Clauses

Traditionally any real estate offer will include at least a few of these contingency clauses. 

1. Inspection Contingency

An inspection contingency states that your offer is contingent on a satisfactory home inspection completed by an inspector of your choosing. Historically the results of these inspections could require renegotiation on terms of the sale. 

This is one contingency that has been frequently left off of offers in todays market. If omitting the inspection contingency makes you nervous, a way to get the information you need is to hire an inspector to come tour the home with you. This will not be the detailed inspection you would normally get but it would give you a top level report of potential areas of concern so you can make an educated decision as you proceed with your offer.

This is especially valuable in an area where you might only have the opportunity to walk the property one time before making an offer. 

2. Financing Contingency

The financing contingency is an important one. The financing contingency gives you a certain number of days after the offer is accepted to obtain financing. You never want to waive the financing contingency without talking to your mortgage lender. 

The Legacy Mortgage pre-qualification looks at your financial portfolio including debt, income, credit etc. This gives us a good picture of your borrowing potential before the offer is made and we can advise accordingly. If you are even considering waiving financing you want to be working with a local lender and definitely don’t do it without speaking with them first. 

3. Appraisal Contingency

The appraisal contingency is particularly tricky in this current market. Some contracts may express the appraisal contingency specifically and others include it as part of the financing contingency. This contingency protects you if the home appraisal comes back lower than the purchase price. In the past this has been an opportunity for renegotiation of price. 

The current real estate market has high price tags and a common practice of bidding over asking price. This environment makes it very possible for an appraisal to come in low. 

If you have enough cash to make up the difference between the appraisal and the purchase price you can waive appraisal contingency or you may consider adding an appraisal clause which states your intention to buy the home regardless of any discrepancy between the appraisal value and the purchase price. You need to be sure you have enough cash to cover the difference in this scenario.

4. Escalation Clause

The escalation clause is a very valuable tool in today’s real estate market. You would only use an escalation clause when you believe there will be multiple offers on a property. You would want to present the seller with a strong and competitive offer. If that offer includes an escalation clause you want to identify your escalation amount (example, $3,000) as well the cap, the maximum you’re willing to pay for the home. 

When there are multiple offers on the table that triggers the escalation clause and your offer would increase in $3,000 increment (according to this example) until you either reach the escalation clause cap or secure the highest bid on the property at hand.

This type of clause in your offer allows you to be competitive without coming in right at your absolute best and final. The escalation clause can make your offer stand out and also stream line the bidding process. An escalation clause is certainly not a guarantee but it is a valuable tool.

 5. Home Sale Contingency

The home sale contingency is basically a contingency that the buyer is only held to the sale contract if they are successfully able to sell their existing home. This type of contingency in an offer gives the buyer the safety that if their current home does not sell in a certain time period or for a certain amount, they would be released from the contract on the new home without legal consequences. Home sale contingencies are not particularly appealing to the seller especially in a sellers market.

Contingency Considerations

Contingencies are in place to protect the buyer. Waiving them can definitely make an offer more appealing to the seller but you want to discuss the potential risks at length before you go that route.

When you make an offer on a home you attach earnest money to the offer. The money signifies your commitment to buy the home. If you should need to back out of the sales contract for any reason without a contingency in place your earnest money belongs to the seller. Earnest deposits are typically around 3% of the purchase price which means $12,000 on a $400,000 home. That potential loss is why you want to ensure you speak at length with your real estate agent and your mortgage broker so that you are fully prepared and confident in your offer. 

If you are looking to buy a home in the current Upper Valley real estate market, you need a team of local real estate experts on your side. We have the privilege of partnering with the best local agents, appraisers and attorney’s the Upper Valley has to offer. When you work with Legacy Mortgage you are working with the best local professionals from beginning to end. Reach out to the Legacy Mortgage team to get started get the loan process started. Call us today, 603-643-7400.