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How do you explain waiving contingencies to clients?

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As a real estate agent, you know that contingencies are clauses in a purchase contract that allow the buyer to back out of the deal under certain conditions, such as inspection, appraisal, or financing. Contingencies protect the buyer from losing their earnest money deposit or facing legal consequences if they can't complete the transaction. However, in a competitive market, some buyers may decide to waive some or all of their contingencies to make their offer more attractive to the seller. How do you explain this risky strategy to your first-time home buyers and help them make an informed decision?

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1 Benefits of waiving contingencies

Waiving contingencies can give your buyers an edge over other offers, especially if the seller is looking for a quick and hassle-free sale. By waiving contingencies, your buyers are showing the seller that they are confident and committed to buying the property, and that they are willing to take on some of the risks and responsibilities that would otherwise fall on the seller. This can make your buyers' offer stand out and increase their chances of getting accepted.

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Lauryn Dempsey

Real Estate Insights from the Front Line of the U.S. Economy | Denver Metro Realtor | U.S. Navy Veteran
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In a multiple offer situation, waiving contingencies is how you win the house. In the 49 multiple offer situations my clients have been in since 2020, my clients have only lost 8 times. And in most of those losses, they were verbally countered by the seller and elected to continue searching rather than escalate. Success in multiple offers begins at the original buyer consult where I explain market conditions and highlight multiple offer tactics. It’s important to begin the convo early. From there, it’s connecting with a solid lender who thoroughly understands your financial situation before shopping. Once it’s time to write an offer, and if it’s competitive, my clients are well informed of the financial and real estate risks.

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2 Risks of waiving contingencies

Waiving contingencies also comes with significant risks that your buyers need to be aware of and prepared for. If your buyers waive the inspection contingency, they are accepting the property as-is, and they won't be able to negotiate repairs or credits based on the inspection results. If your buyers waive the appraisal contingency, they are agreeing to pay the agreed-upon price regardless of the appraised value, and they may have to cover the difference out of pocket if the appraisal comes in low. If your buyers waive the financing contingency, they are promising to buy the property even if their loan falls through, and they may lose their earnest money deposit or face legal action if they can't close.

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Steve Maher

Franchise Owner and Licensed Home Inspector | Pillar To Post Home Inspectors
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If you are considering taking the risk of waiving the inspection, there are additional steps that can be taken to help mitigate this risk: Thoroughly read the Seller's Disclosure form to understand what pre-existing conditions are present with the home. Ask questions to understand exactly what they are disclosing, and what remidation could cost. Get a home inspection, but consider not making the deal contingent on the inspection outcome. Get a home inspection after the deal closes to understand the the overall condition of the home, understand necessary repairs, and be able to budget for those repairs. Consider a home warranty as part of the home purchase, but be aware of all the warranty program limitations.

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3 Factors to consider before waiving contingencies

Before your buyers decide to waive any contingencies, you need to help them evaluate their situation and weigh the pros and cons. Market conditions, such as inventory levels and demand, should be considered, as well as the property's age and condition. It's also important to look at the buyer's financial situation, including their cash on hand and credit score. Lastly, the buyer's risk tolerance should be assessed to determine how comfortable they are with taking on potential issues and how much they want to buy the property.

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4 How to waive contingencies safely

If your buyers decide to waive some or all of their contingencies, it's important to guide them through the process and help them minimize their risks. You should do your due diligence by researching the property history, reviewing the seller's disclosures, and requesting any relevant documents or reports. It's also beneficial to conduct a pre-inspection or a walk-through with a contractor or inspector before making an offer. Additionally, make sure your buyers have a solid pre-approval letter from a reputable lender that shows their financial strength and readiness to buy. If possible, get a fully underwritten pre-approval that verifies their income, assets, and credit. If your buyers are waiving some but not all of their contingencies, you can try to add them back in as part of the negotiation. Lastly, prepare your buyers for the worst-case scenarios and have a contingency plan in case things don't work out.

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5 Communicating with your buyers

The most important thing you can do as an agent is to communicate clearly and honestly with your buyers about the implications of waiving contingencies. You need to explain the benefits and risks, educate them on the factors to consider, and advise them on the best course of action based on their goals and circumstances. You also need to respect their choices and support them throughout the transaction. Remember, your role is to help your buyers make an informed decision, not to make it for them.

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Lauryn Dempsey

Real Estate Insights from the Front Line of the U.S. Economy | Denver Metro Realtor | U.S. Navy Veteran
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Ensure your communications and advice are in writing. Multiple offer situations are fast-paced and it’s important clients fully understand what they’re agreeing to before submitting an offer.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Paul Nagel

Vice President / Home Loan Consultant at Main Street Home Loans (NMLS#659474) | LinkedIn Top Voice
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The discussion has to be specific to the clients situation, not generic discussion of risks & benefits. First, ensure the client understands how the rules for financing approval work, or how a low appraisal can impact them. Next, discuss how a low appraisal impacts their funds needed to close or monthly payment. Or how a job loss, underwriter review, etc, could impact the approval of their mortgage. Cover everything that could go wrong and quantify it. Finally, always review the worst case. Generally, if someone is ok with worst case, they're in good shape. One should waive contingencies when they fully understand the contingency, feel the risks can be managed, feel the risks are not likely, or feel the benefits outweigh the risks.

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Working with First-Time Home Buyers

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How do you explain waiving contingencies to clients?

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1 Benefits of waiving contingencies

2 Risks of waiving contingencies

3 Factors to consider before waiving contingencies

4 How to waive contingencies safely

5 Communicating with your buyers

6 Here’s what else to consider

Working with First-Time Home Buyers

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