Waiving contingencies on a home offer: should you ever do it?

You have finally found the home of your dreams. It is in the right neighborhood, near the best schools and even has the perfect backyard. As you are preparing to make an offer, you are devastated to find out that this property is the home of many other buyers' dreams, too. Suddenly, you find yourself in a bidding war. You are competing with a large group of buyers for the home, and as a result you want to make your offer as appealing as possible. So how do you do that? 

In a competitive market, many buyers will waive certain contingencies commonly included in an offer. Contingencies lay out any situations that would allow a buyer to back out of or renegotiate a deal.

Waiving contingencies often makes a buyer far more appealing to a seller, but it can also be a huge risk for the buyer. When considering whether you're in a position to waive any contingencies, think it through carefully. Try not to act on emotion and waive anything that stands between you and this dream home. Waiving contingencies, after all, has the potential to result in some serious financial issues for you. and it is important to fully understand the risks.

Common types of contingencies
There are a many different contingencies you could add to an offer, but here are a few of the most common:

• Home inspection contingency: This contingency allows a buyer to hire a home inspector to survey the home for damages before the deal closes. If major issues are discovered in the home, the buyer has the right to negotiate with the seller for repairs or back out of the deal entirely.
• Financing contingency: The financing contingency allows the buyer to break the contract if his or her financing falls through. If for some reason a buyer ends up unable to obtain a loan or can't get a loan that is large enough, he or she can back out of the deal without losing his or her deposit.
• Appraisal contingency: When an offer is accepted on a property, the lender will come out and appraise the home to determine its value. The appraisal contingency protects the buyer from being locked into the deal if for some reason the home appraises for less than the agreed upon price. A lender will only be willing to loan a buyer an amount money up to the appraisal price, so this contingency is key to protecting the buyer.

There is substantial risk associated with waiving any of the above contingencies, but at times a buyer might be in a position to do so.

Waiving a home inspection contingency

Most experts do not recommend waiving the home inspection contingency without prior knowledge of the state of the home. Otherwise, you could end up with a home that requires thousands of dollars worth of repair and by then you won't be able to back out or ask the seller for financial assistance.

Waiving the home inspection contingency, however, could make you quite appealing to a seller. According to Redfin, one safe way to waive it is to have a pre-inspection before ever making an offer. If you have a pre-inspection and an inspector's report does not reveal any serious issues, you can confidently waive the contingency.

If you don't want to pay for a pre-inspection, since you aren't sure if you'll get the home, Realtor.com suggested a general inspection contingency, which means that after an inspection you can either back out of the deal or take the home as is, rather than negotiate with the seller about repairs.

Just remember that waiving the home inspection contingency can be very dangerous, so make sure you know what you're getting into before you do it. 

Waiving a financing contingency 

If you waive the finance contingency, you should feel confident that you have alternative options to finance the home if your lender falls through. As Realtor.com emphasized, there are a lot more problems that arise than you may think when it comes to final loan approval. Even a pre-approval is not a guarantee that your loan will come through. If you waive this contingency, you are still responsible for purchasing the home if the loan does not work out - or you may be able to back out of the contract but lose your deposit. It is also possible the seller will decide to sue you if you break the contract. 

Before deciding if you want to waive the financing contingency, the Washington Post suggested imagining every single worst case scenario that could happen if you do it. What if you lose your job? What if the lender is only willing to loan you half the amount you thought you'd get? 

Of course, as Redfin acknowledged, if you are paying for the home in cash financing is not even an issue. In this case you will definitely not need to include the financing contingency in your offer. 

Waiving an appraisal contingency 

Waiving the appraisal contingency creates a similar risk to waiving the financing contingency. The lender will only be willing to lend you an amount up to what the home is appraised for. If the price you agreed on with the buyer is higher than the appraisal price and you have waived this contingency, you will have to pay the difference in cash. If you are not in a position to do so, waiving this contingency is probably a bad idea. Realtor.com explained that different appraisers prioritize different factors in determining a home's value, so it's hard to anticipate what the appraisal price will be. 

If you keep the appraisal contingency, you will be in a position to either break your contract or renegotiate with the seller if the house appraises for less than the price you agreed to pay. Waiving it means you won't be in any position to bargain. 

When considering whether to waive certain contingencies, your real estate agent is a fantastic source. Talk it over with him or her to decide what's best for you and help you determine if you are in a position to take on that risk.