With home buyers facing tougher competition this year amid ongoing housing shortages, some are trying to gain an edge by waiving contingencies to make their offers look more enticing.
Redfin said this week that almost 20% of successful offers submitted by its agents in June in select U.S. markets waived the inspection contingency, compared to just 13.2% who did so in June 2019. In addition, 20.6% of successful offers also waived the appraisal contingency, up from 17.4% one year ago.
Experts says that buyers are doing this to try and make their offers more attractive to sellers. The inspection contingency allows the buyer to cancel a purchase or request repairs are made to the property following a home inspection. Meanwhile the appraisal contingency allows them to renegotiate the price if the home’s value is appraised at a lower amount than the offer they’ve made. Both contingencies are designed to protect home buyers during a transaction.
Waiving the contingencies means the seller is more likely to consider the buyer’s offer. Redfin said that more than half of its offers competed against other bids in June, adding that demand for homes was driven by tight inventories and lower mortgage rates.
“Today’s market remains tipped in favor of sellers as would-be spring buyers are shopping well into what would normally be summer vacation season,” said Danielle Hale, realtor.com’s chief economist, in a recent report. “Home buyers, trying to take advantage of record low mortgage rates and make up for lost time, are finding limited and more expensive options. Although sellers are slowly acclimating to this unexpected surge in buyer interest, inventory is still lagging behind demand, which is driving quick time on market and listing price growth on par with this time last summer.”
“The situation is out of control,” said Lindsay Katz, a Redfin real estate professional in Los Angeles. “I put a house on the market the other day and within about 24 hours I already had 42 showings booked.”
Katz said she recently sold a home listed at $685,000 to a buyer who outbid 11 others by waiving the appraisal and inspection contingencies. The buyer ended up paying $770,000, and agreed to have their loan approved within 10 days to clinch the deal.