With inventory low and high competition for homes in the lower price points we know it can be difficult going up against other buyers with more down payment right now.

This demand means buyers are going to great lengths to make their offer stand out. They’re making over-listing price offers and writing heartfelt letters to sellers about themselves. But some buyers in especially tight markets are taking even riskier measures to beat out competitors: They’re removing contingencies.

What is a contingency? In the world of real estate, they are essentially conditions that must be met to finalize the sale of a home. The provisions of a contingency contract are there to protect buyers and sellers. A contingency offers an escape hatch if problems arise with the home or the homebuying process.

While it’s tempting for buyers to waive contingencies to make an offer more compelling, it can leave them with a bad investment. To help you understand homebuying contingencies, we have listed a few below and  which ones should never be waived.

1. Home inspection Contingency

A home inspection is the foundation on which all other real estate contingencies are built. In the inspection, a neutral party (licensed home inspector) assesses the home for roofing, crawl space, attic, plumbing, structural, electrical, and other major problems. The inspector writes a report that they provide to you on the condition of the home.  If you waive this contingency and agree not to do an inspection you could be agreeing to buy a ticking time bomb.

The home may look great on visual inspection, but you won’t really know how much you’re facing in repairs until the inspection are done.  You have heard the term “lipstick on a pig”?  Sellers can hide many issues with paint and spackle!

Buyers should assess the inspection and decide what kind of repairs need to be done.  Decide if it’s worth it to them to cover the fixes, or if they would prefer to negotiate with the seller on a lower price, closing cost credit or price-sharing plan.  Inspections can and often do open negotiations with the seller.

2. Well water/septic system/Side Sewer inspection

Another contingency that should never be slashed is the well water/septic system/side sewer inspections.

If the property you are buying is on a private well, don’t waive the inspection.  Test the water for bacteria and other contaminants.  Here is a link for information on what to look for and the labs that will do testing for you:  https://doh.wa.gov/sites/default/files/legacy/Documents/Pubs//331-349.pdf

A private well should also have a well flow test where you are measuring the gallons per minute (gpm).  You need a minimum of 1 gpm and should be closer to 5 gpm.  Take a 5-gallon bucket and turn on the hose.  Record how long it takes to fill it.  You want to make sure the pump provides enough water pressure to take a shower and fill the coffee pot!

Septic systems use a combination of nature and time-tested technology to treat wastewater from household plumbing produced by bathrooms, kitchen drains, and laundry.  In Washington State, when a homeowner is selling their home, they must have the county certify the septic tank.  That involves a certified company to come out and pump the septic and verify that it is operating properly.

Check out this site about more information on “Caring for Your Septic System”.

https://doh.wa.gov/community-and-environment/wastewater-management/septic-system/caring-your-system

Very few home buyers consider sewer inspections before buying a home. They know they should get a home inspection, but the sewer line is almost an afterthought. Yet this is one of the most important inspections a buyer of an older home should conduct because it can turn up problems that can be expensive to fix.

So, what is a side sewer?  A “side sewer” carries wastewater from your home to the public sewer. If you own your home, you own your side sewer until it connects to the public sewer pipe.

Many of the older homes have sewer lines made from cement sections or clay pipes that are connected. Clay and cement disintegrate and collapse over time. The sewer line can over time have a dip that catches debris or tree roots penetrate the line and breakdown the pipes. A sewer scope inspection is the only way to find out if there are any issues.

3. Appraisal

The appraisal contingency is a clause in the purchase contract that allows the buyer to back out of the deal or renegotiate the price if the appraised value of the property comes in lower than the agreed-upon purchase price.  An appraisal contingency can provide valuable protection and negotiation power during the home buying process.

Waiving the appraisal contingency commits the buyer to pay the agreed-upon price, even when the home appraisal is less than the sales price.  Lenders will base they loan off the appraised value or sales price, whichever is less.  That means you will potentially be on the hook to pay the difference out of pocket for the home you have under contract.

If the appraisal comes in lower than the purchase price, the buyer may end up paying more for the property than it’s worth. This could lead to negative equity right from the start, making it challenging to refinance or sell the property in the future without incurring losses.

4. Financing

The financing contingency is one of the most misunderstood contingencies in the homebuying process, and one of the most important for buyers to negotiate carefully. This clause asserts that your offer is dependent on being able to secure financing. If you remove it, you may not get your earnest money deposit back if you cannot obtain a loan.

So, if you’re like most buyers and plan on financing your home purchase with a mortgage, you should never remove the financing contingency.

#PurchaseAndSaleContingencies #FinancingContigency #AppraisalContingency #HomeInspectionContingency