Last Updated: April 3, 2022

Contracts Without Contingencies

Written By: Barbara L. Pearce
Pen laying on a piece of paper

Given the state of the current heated real estate market, many contracts are being drawn up without contingencies. This, of course, is done because buyers want their offers to stand out above others.

Mortgage Clause

The first contingency to disappear is usually the mortgage clause, which allows the buyers to withdraw if they cannot procure an acceptable mortgage. This gives the sellers some certainty, which otherwise they wouldn't have for weeks. It does not, however, preclude the buyers from applying for, or obtaining, a mortgage, either before or after the closing. It just means that they have the funds to close without one, through cash, the sale of another property, or some other means. Many buyers do, in fact, apply at the normal time. The problems usually arise when either they really do need the mortgage to close, something happens to the sale of their current home, or the appraisal comes in low. In a rising market, appraisals can often be low, since appraisers are only allowed to use data from closed properties in the same town, within a short distance. Since many properties under contract might be at higher amounts, but are excluded from the analysis, this can happen without it meaning that the buyers are paying too much. They might, however, be spooked, and want to renegotiate. This is unprincipled, because they have said that they don't need the mortgage, and have waived that contingency. Therefore, unless there is another contingency that calls for the property to "appraise out", they need to go forward. At that point, some contracts fall apart.

Inspection

The second most common contingency to drop is the inspection. Sometimes it still is in the offer, but "for informational purposes only". Again, the buyers may see the report, and wish to renegotiate the price or ask for repairs, even though they have said that they will not do that. It's like having a medical test just to be sure, and then getting inconclusive results. It leads to worry, more visits, and more tests. The difference is that there is no contract with the doctor, saying that the test will not change anything. It is simply human nature for people to try to ask for money back anyway. Sellers can stand firm, particularly if there are backup offers in line, and buyers should not be surprised if the sellers try to back out and go on to the next offer, as soon as any issue is raised.

Other contingencies to disappear can be

Closing dates, septic inspections, or anything leading to a chance to lower the price or withdraw. Buyers should take that offer language seriously, and not think that there is always a way to get out if they should change their minds. Sellers should also know that another offer may come along that's better; if they are committed to the first one, it will stick.

"New York Closing"

There is an old joke in real estate about a "New York closing", which refers to a closing where the buyers show up and then start to talk about what they are willing to pay. Fortunately, it is, most of the time, a joke. All parties, though, should be on their best behavior. Having doubt about the integrity of the other party is a sure sign of trouble to come.

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