Waiving your financing contingency?

The greater Seattle real estate market is hot. With the lack of inventory, some home buyers have found themselves in a position where they feel they need to waive their financing contingency or the appraisal. I see this strategy happen when home buyers have been competing with multiple and/or cash offers.

Waiving any contingency takes away protection for the buyer in the event something doesn’t go as planned. It’s not uncommon, in this market, for buyers to waive their inspection contingency and do a “pre-inspection” before submitting an offer. At least, if you do a pre-insepction, you have an idea of the condition of the home.

When you waive the appraisal contingency, you are at risk for a low appraisal or the appraiser calling for items to be repaired. Even if the home had mulitiple offers, it still needs to have “comps” for the appraiser to determine the “appraised value”. Ideally, comps are homes that have recently sold and closed that are in the same neighborhood/area and are similar to the property you are purchasing. Appraised values tend to lag behind a little because they are based on closed properties. If the property you are submitting an offer on is unique, or there are not a lot of comps available, this may impact the appraisal. If you waive the appraisal contingency, you’ll have less wiggle room should the appraisal come in low. Be prepared to make up the difference in cash between the sales price and the appraised value and be sure to discuss this possibility of a low appraisal with your real estate broker.

When you waive your financing contingency, you’re making your offer even more attractive to the seller at the risk of not being able to obtain financing. It’s critical that you speak with your mortgage professional BEFORE submitting an offer waiving your financing or appraisal contingencies or offering a non-refundable earnest money. Even if you have a preapproval letter in hand, you need to confirm that the loan officer can close your loan in the time frame being presented and that there are no issues that the loan officer can predict (as well as they can) with the property

Again, in the heat of the moment when you’re making offers on a home, please please please keep your Loan Officer in the loop! Especially when you’re waiving any part of the financing contingency.