When you find a home you want to buy, many things often need to fall into place before you can get the deal done. You may need to sell your current home first or ensure you can obtain financing at a reasonable rate. You also want to make sure that you’re getting what you pay for instead of a house full of hidden problems that will become your problems after closing. That is why you, like many buyers, may put contingencies in your real estate contract.

Contingencies in a real estate contract are things that must or should happen before the purchase and sale is consummated. If these specified events or tasks don’t happen or get done, the party who requested them can walk away from the agreement. But sellers don’t necessarily like the uncertainty that comes with contingencies, especially if another buyer is ready to consummate the purchase without them. In a competitive market, that raises the question of whether a Chicago home buyer should ever waive contingencies when negotiating a home purchase.

Common Contingencies In A Real Estate Contract

The most common contingency clauses that buyers request include:

  • Appraisal contingency. Buyers will request this contingency to ensure that that the home they are about to buy has a valuation at or above a certain specified amount.
  • Financing/mortgage contingency. Since the purchaser’s ability to buy the home is usually contingent on obtaining a mortgage, they may add this clause so they can get out of the contract and recover any earnest money provided if they can’t secure appropriate financing.
  • Home sale contingency. Many buyers need to or want to purchase a new home before they have had the opportunity to sell their old one. This contingency provides the buyer with a specific amount of time to sell and settle their existing home so that they can finance the new one.
  • Home inspection contingency. The buyer can make the purchase contingent on a report a home inspector provides within a specified amount of time. The parties can agree on the items that could justify either a termination of the agreement or a concession by the buyer as to purchase price or a commitment to remedy the issue.

Why Waive Contingencies?

While contingencies can provide significant protections for a buyer, they can be a risk and burden for sellers. Accordingly, offers without contingencies will be more attractive to sellers. In a competitive market, that can leave buyers who insist on contingencies at a disadvantage, no matter how reasonable the requests may be.

A buyer squaring off against other purchasers who are ready to close without contingencies may offer to waive those contingencies to increase the attractiveness of their bid. Where there aren’t multiple offers or all prospective purchasers are requesting contingencies, a buyer can gain leverage on the sale price by agreeing to waive their conditions in exchange for a lower sale price.

Risks Of Waiving Contingencies

The primary reason that buyers include contingencies is to protect themselves from risk – the risk of carrying two mortgages, the risk of losing their earnest money, the risk of buying a home riddled with defects that will cost tens of thousands of dollars to fix.

As such, waiving contingencies inherently means taking on more risk. Buyers need to determine whether their desire to buy a specific home is greater or less than the amount of risk they are comfortable taking on. It can be a difficult decision. But an experienced Chicago real estate agent can help buyers evaluate their options and make the decision best suited to their needs and goals. Please contact us to learn more.