The 2021 real estate market thus far has been pretty busy! Competition is beyond fierce for home buyers, with many encountering bidding wars or a lack of inventory altogether.
Fortunately, there are ways that buyers can stand out in the crowd, and one of those involves removing contingencies early. But in some cases, this can be risky. Before we review the pros and cons, it’s essential to understand the purpose of contingencies.
For the buyer, a longer contingency period means that they will have more time to make sure the house they’re purchasing is a good fit for them. On the flip side, a shorter contingency period benefits the seller because the sale can proceed more quickly.
Here are some considerations to keep in mind regarding contingencies!
The Good News
- Buyers who are in a position to remove contingencies early may be more attractive to a seller in a bidding war or multiple-offer situation.
- Sellers often see contingency removal as an indication that your offer is less risky than others.
- Removing contingencies early can give sellers the impression that your escrow will cross the finish line without any issues.
The Bad News
- Buyers who remove contingencies have no legal protections if they need to cancel the purchase contract for any reason.
- If a buyer backs out of the sale for any reason once contingencies are removed, they lose their Earnest Money Deposit (EMD). And in many cases, this can be a sizable amount of money.
- Specifically, when a buyer removes loan/appraisal contingencies, this means that they are required to come into the transaction with the required money to offset the difference between the offer price and the appraised value of the home.
- For real estate agents, if the deal falls through, the property needs to be relisted entirely to be sold.
Because of the potential negative implications, buyers must understand the terms and conditions of their contract before they remove any contingencies. Of course, not all contingencies are created equal, so there may be an opportunity to carefully remove certain contingencies while keeping others intact.
For assistance with all of your escrow needs, please reach out to our dedicated team. We would be delighted to assist you!