The Dangers of Making A Non-Contingent Offer

In a seller’s market, buyers are tempted to make their offers as attractive as possible. One popular method is to make a non-contingent offer. As a buyer, this means waiving your right to certain safeguards before closing on the home, such as a property inspection or final loan approval.

However, these safeguards exist for a reason, and waiving them can lead to deals falling through, unrecovered deposits, and hefty legal bills.

The Property That Wasn’t

Imagine you make a non-contingent offer on a home by waiving your right to a property inspection. Congratulations! You made a winning offer, turns out the property is not up to code, and you now need to spend a small fortune to get it there—on top of the biggest financial transaction of your life

Not exactly the “new homeowner’s bliss” you were anticipating, is it?

The Loan That Wasn’t

Let’s imagine another situation in which you waive the loan contingency. You’re in a seller’s market, and you’ve made an offer for hundreds of thousands over the asking price on your dream property. After all, you want that home!

Not so fast. Your lender may be perfectly happy to issue a loan for the property value, but if your offer vastly exceeds what an appraisal might yield, they may not issue the loan—leaving you stuck in limbo, unable to complete the transaction, but with no easy option for recovering your deposit.

So Long, Savings

If you end up in one of these unfortunate situations and either can't or won't close the transaction, your only options are of the legal variety, and often quite expensive.

You can’t simply ask nicely for your deposit back, because real estate tractions typically include a liquidated damages provision to protect both parties from breach of contract. That means the seller is guaranteed a percentage of the price from the buyer if the latter backs out of the deal. After all, the seller has property expenses that have now been extended, like mortgage payments, insurance, and utilities—not to mention the opportunity cost of a more attractive offer.

While it’s possible to hire a lawyer and build a case that the liquidated damages are unreasonable, this is an expensive, time-consuming route with no guarantee of success. Wouldn’t it be better to avoid this situation in the first place?

Keep Your Emotions in Check

We get it. You’re in a seller’s market, you found your dream home, and you want to do everything you can make it yours. Emotions can run incredibly strong—after all, your home weighs in the balance, conjuring up emotions that can cloud your rational judgment and lead to expensive mistakes.

We hope that laying out some of the consequences you may not have considered from non-contingent offers will make you think twice before making one yourself. Who knows, it just might save you from disaster.

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