Would you waive contingencies in this competitive Seattle market? (sale, real estate market)

[hellopity]

Seattle Times featured this article and it got me thinking: would I waive any of these contingencies if I were a buyer today? The answer is probably no. But, people are doing it and I hope it works out well for them.

https://projects.seattletimes.com/20...to-buy-a-home/

[homesinseattle]

Hi Hellopity,

In the case of centrally located desirable homes, some version of what you mention is often what it takes to win. The term "waiving contingencies" can be misleading. Most homes are listed on Wednesday or Thursday then offers are reviewed 6 or 7 days later. That gives ample time for an inspection to be performed, it's called "pre-inspection" because it is before the offer review date. So, in a sense you are waiving that contingency with your offer but not really because it was already completed. Same goes with title and property information review, pretty much always "waived" in this market. Again though, the review period allows enough time to have a good look at these things before offer review.

That brings me to finance contingency, the one that gives people the most pause. When I meet with clients, I tell them the different thresholds of this then let them choose what is comfortable for them. There is a very real possibility of competing with cash each time a buyer goes into a competitive situation. Cash can be beaten with an "all in" financed offer.

Why would someone be so stupid, you ask? The answer is that they want to win and have planned well enough to give them comfort with this approach. This involves having gotten absolutely everything to their lender in advance of tendering an offer so that they are not just "preapproved", but "pre-underwritten". If their job is secure and their credit rock solid, there is no reason to think that a lender would change their mind about the commitment, hence the buyer confidence. The other "risk" a financed buyer assumes when waiving finance contingency is that the home doesn't appraise for the purchase price and that the buyer will be contractually compelled to bridge the difference with more downpayment to cure the perceived value gap.

I say "perceived" as no matter how objectively measured or scientific appraisers would like you to believe their work is, I have seen 2 appraisers be $50k apart in value on the same home in the same week. Knowing this is true, buyers who have a significant amount of liquidity often set aside a sizable portion of that to cover the possibility of an appraisal gap. For example, I met with a relocating client this morning who is buying in Seattle in the $900k range. They have $300k liquidity to work with, have earmarked 20 percent ($180k ish) for downpayment, and preserved the rest to give them the ability to waive finance contingency and bridge a possible appraisal gap. I have used the same methods with a number of clients to prevail against cash offers. This isn't done casually, I regularly research the subject properties and calculate where I believe it will appraise. I encourage my clients to do the same. I see it as a collaborative process, we compare notes and ideas and together determine their threshold for this process relative to each property they make offers on.

Most of time I have done this and been successful, the home has appraised just fine and there has been no appraisal gap to cover. The few times it hasn't, the gap wasn't that sizable and covered just fine by the buyer's preserved liquidity. I should mention that there is a lesser version of this which relates again directly to the buyer's liquidity. A number of buyers recognize the value of this principle but need to quantify the potential appraisal gap that they are willing to cover,. A strong effort might be $50k but I have won for my buyers with contractually offered gap coverage as low as $20k. This depends on location, competition and desirability of property. Again, same dynamic. The homes have almost always later appraised just fine.

So, "waiving contingencies", if done correctly, is a very well thought out process. In the case of a full waiver of finance, I'm able to look the realtor for the seller in the eye and confidently represent my buyer as "as good as cash". This process is not for everyone, as I've articulated there are different levels of offer strength. Everyone has a different financial reality, I try to be keenly aware and respectful of that.

Hope that helps,
Vince

[hellopity]

Those are very helpful insights. I’m not saying waiving contingencies isn’t well thought out or calculated. I’m just saying buyers today are incurring more risks and costs (like paying for pre-inspections when they don’t even know if their bids will be accepted) just to stay competitive and I’m not comfortable with those risks. That’s why I liked my pre-sale experience so much when I bought the condo a couple years ago. Pick the unit, pay the earnest money to reserve it, and close when it’s time. Zero hassle, zero haggling.

[homesinseattle]

Originally Posted by hellopity

Those are very helpful insights. I’m not saying waiving contingencies isn’t well thought out or calculated. I’m just saying buyers today are incurring more risks and costs (like paying for pre-inspections when they don’t even know if their bids will be accepted) just to stay competitive and I’m not comfortable with those risks. That’s why I liked my pre-sale experience so much when I bought the condo a couple years ago. Pick the unit, pay the earnest money to reserve it, and close when it’s time. Zero hassle, zero haggling.

I hear you, hello. Buyers often budget some funds toward a few inspections, imagining that they might not win the first time. I don't think that way though, I like to win . Increasingly common also are seller provided independent inspections, statistically it has been found that this increases the number of offers.

[Seacove]

Most buyers do pre-inspections so they can waive the inspection contingency. The real estate market here is extremely competitive as we just experienced with a family member and they were paying cash.

[hellopity]

Originally Posted by homesinseattle

I hear you, hello. Buyers often budget some funds toward a few inspections, imagining that they might not win the first time. I don't think that way though, I like to win . Increasingly common also are seller provided independent inspections, statistically it has been found that this increases the number of offers.

We provided an independent inspection when we sold our house a couple years ago.

[Seattleareanative]

I believe that when a seller provides an inspection report it makes submitting an offer for the buyer free and easier. In my experience, free and easier usually means more offers as homesinseattle said.

I recommend this strategy to all my sellers and I don't see a downside. I've had sellers ask if providing the inspection report puts them at greater risk for a litigation after closing and while I'm certainly not an attorney, I don't think it does. As long as the seller is being truthful in the seller disclosure statement and the inspector performing the inspection is a honest, reputable, licensed inspector, the inspection report discloses much more information to the buyer than just the seller disclosure statement alone.

The other question that I get a lot is "what if there are a lot of issues with my house". I'm of the opinion that the more information we have the better. If issues arise from the inspection, the seller has the opportunity to make repairs before going on the market or we adjust the list price to reflect the condition of the property. I also think it's important for the buyer to understand the condition of the property before making an offer. The biggest momentum killer for a seller in this market is to get under contract then have the buyer rescind based on the inspection. If the buyer understands the condition of the property before submitting the offer, the chance of closing the sale is much greater than the buyer performing the inspection after mutual acceptance.

Many brokerages, such as mine, also provide a form that is to be included in the purchase and sale agreement that helps to mitigate the sellers (and agent's) exposure if they provide a seller procured inspection report.