Contingency-free offers are popping up in hot market niches where buyers will take the risk in order to compete in a market with tight inventory and plenty of demand. What should a seller consider before accepting an offer with no loan contingency, no appraisal contingency and no inspection contingency?
An all-cash offer with no financing contingency is a good deal only if the buyers actually have liquid funds to close. Make sure you verify this as a condition of accepting the offer.
The temptation is strong to sign the contract and worry about the details later. However, what you don’t want to have happen is a scenario like this: The buyers have their money in the stock market. The market drops and they end up with less cash than they need to close.
HOUSE HUNTING TIP: Savvy buyers who are in competition provide copies of bank statements, with account numbers blacked out, or a letter from a financial institution stating that the buyers have the liquid funds required to close, at the time they present their offer. If they don’t, make sure the contract requires that this documentation be provided within a couple of days of acceptance. If you have to put the house back on the market due to lack of funds, it’s better to do so sooner rather than later.
Sometimes buyers make all-cash offers but intend to get a mortgage to close the deal. This should be disclosed in the purchase contract even if the buyers don’t include a financing contingency to protect themselves in case their loan is not approved.
There is a big difference between buyers who have and will pay cash, and will close quickly, and those who say they’ll pay cash but need to go through formal lender approval before the transaction can close. Sellers who make plans based on the terms of the contract could find themselves in trouble if less-than-candid buyers can’t close on time, or at all.
A seller in this case may be able to pursue a legal remedy for financial remuneration, but this would require an attorney’s interpretation, and it would take time.
A similar problem can occur when buyers make an offer promising a large cash down payment, but change their mind at some point and decide to put less cash down, which requires a larger loan amount.
This can change the approval process significantly. The lender could require two appraisals rather than one if the loan amount is above a certain amount, like $1 million. The lender underwriting process is more rigorous. It will take more time and could delay closing.
A change to the financial terms of a home purchase contract, which is a bilateral contract, should be agreed to in writing by both buyer and seller. One party is not supposed to change the terms of a bilateral contract without the consent of the other party.
Offers with no inspection or appraisal contingencies, while appealing, can also be problematic. Unless the buyers have done preinspections, with the sellers’ permission, give a second thought to accepting an offer without an inspection contingency.
Even if you had presale inspections done, if something significant had been overlooked, you could end up in a legal battle later. To protect yourself, counter the offer to include a short inspection contingency so that the buyers can’t later say they bought the house under pressure and weren’t given the opportunity to inspect the property.
THE CLOSING: Sellers should make sure that buyers who make an offer without an appraisal contingency are willing and able to put more cash down, if necessary, to make the deal work if the appraised value turns out to be less than the offer price.