Waiving Contingencies

Hello, this is going to be a video on waiving your contractual contingencies. Waiving contingencies. Which in a hot market, I get quite a bit of questions on this topic. So, the contingencies are typically termite inspection contingency, home inspection contingency. Appraisal contingency and financing contingency are more related to the loan. The termite and the home inspection are obviously more related to the house. So, on waiving a termite inspection contingency, that’s just your call as the buyer. Do you want to trust if there’s any damage, repairs or treatment needed for termites that you’re going to have to do them on your dime? And that’s something that you don’t get to negotiate with the seller because you’ve waived that contingency. That’s just a personal call. If the market’s hot, you’re looking at a house with a bunch of offers, might be something that you have to consider.

Waiving a home inspection by doing a pre-inspection

Same thing with the home inspection. That’s a much bigger issue of course. You look at a house and you think, “Well, it looks good to me.” And then of course you get in and it’s hard to see things behind the walls. You know, most home buyers aren’t experts on foundations and roofs and systems. So that’s a bigger deal. There’s an option if there’s enough time between when the seller is accepting offers and when they’ve created a deadline for when you have to get your offer in. If you can get a home inspector into the property and he says or she says, “Everything’s okay, by and large, just a few little things to do. But nothing important.” Then you can waive your home inspection contingency because you just did it before you even made the offer. They call that a pre-inspection, prior to making an offer. Seeing if you can get a home inspector into the home and getting a comfort level that there’s nothing major for you to negotiate with the seller.

Waiving an appraisal contingency

The appraisal contingency, that’s a different story. If you waive your appraisal contingency you’re basically telling the seller, if I’ve offered you, let’s pick a round number, and say, $500,000. And if it appraises for $480,000. You’re going to have to pay the $20,000 difference between the low appraisal and the contract price and cash. So let’s say, for example, you’re going to put 20% down. The lender is going to make you the 80% loan minus your 20% down on the lower of the contract price or the appraisal. So if the $500,000 contract ends up yielding an appraisal at $480,000, you’ve got to go 20% down on $480,000 plus closing costs. Plus the $20,000 difference between the low appraisal and the contract price. Who knows what the appraisal may come in with. So you’re really opening yourself up to having to come up with an unknown number.

Try and do your own appraisal

So you really need to make sure that you’ve got a good amount of extra cash to cover what you think the place might appraise lower for. If that’s what people are thinking. And the way that people have to make aggressive bids in a seller’s market, that’s something to have a serious conversation with your realtor. Ask your realtor to look at comps. Take a really hard look at those and try and determine what do we think it’s going to appraise for? That’s all discussion. Appraising a home and somebody’s opinion of what the subject property is worth, and the recent sales, the comparables, that’s a real gray area. You might have a realtor who says, “Here’s three comps that say you’re $500,000 place is easily worth 490.” Well, then let’s say, maybe the appraisal comes in at 475.

Who’s wrong? – Waiving Contingencies

Your realtor who said 490? The appraiser who says, 475? It’s a gray area, and people will interpret and input value to different things in the house in different ways. A realtor might look at a comp and go, oh yeah, that suggests 490 all day long. But maybe they didn’t really carefully analyze the difference in square footages, the difference in bedroom count, lot size, level of finish, maybe one’s renovated, one’s partially renovated. It’s really hard to do effectively an appraisal by quickly looking at recent sales. It’s just really hard. So even if a realtor gives you a number, you need to be prepared that the appraisal could still come in somewhat different.

Waiving a financing contingency

The last one is the financing contingency. Waiving a financing contingency is also a big deal. I have people that tell me that if you want to waive a financing contingency, Brian, what do you think? Well, it’s not my decision. It’s the decision of the client. I can tell you, “Hey, I think you’re well qualified and you’re not likely to get denied on this loan unless you lose your job or you know, the one in a million happens.” So, you make the call. I can’t make that call for you. But waiving the finance and contingency is a big deal. If you don’t get approved for some reason and you’ve waived your financing contingency, you could lose your earnest money deposit. So all these things are really important discussions. Talk to your lender, talk to your realtor, think it through carefully and then make a decision. Thanks for watching about waiving contingencies.

To contact me to discuss your local housing market, mortgage rates, or other mortgage questions, click here to schedule a call or you can email me directly.