In this article, we’ll discuss a non-contingent offer, the risks, and the benefits, helping you make a decision on whether this is the right approach for your next purchase.
Purchasing a home in a competitive market can be extremely difficult. Before you have a chance to even look at a house, it’s purchased. You’re barely aware of a listing before it is purchased by another buyer; when you do get to make an offer, it’s buried in a heap of submissions from other buyers.
In these markets, which are all too common, you need to be highly competitive, giving yourself every possible advantage. You need to keep up and find a way to separate from the competition. A non-contingent offer could provide the boost you need. At the very least, it could help you stay in the game without going high on purchase price.
What are Contingencies?
Most purchase offers are “contingent.” They have certain contingencies, essentially stating that the purchase will go through once specific conditions are met. For example, a purchase may state that the offer is contingent on a successful appraisal. If a successful appraisal can’t be completed, the offer is pulled.
These contingencies are in place, essentially, so that a buyer can back out of a purchase (for a legitimate reason) and have their “earnest money” returned.
There are a variety of contingencies, but they usually fall into three types:
- Appraisal
- Mortgage approval
- Home inspection
Some of these contingencies protect the buyer, while others protect the lender. Either way, most owners are motivated to sell to buyers who have reduced or eliminated these contingencies.
What are Non-Contingent Offers?
Now that you understand contingencies, you can begin to understand what a non-contingent offer is. These purchases, as you may have guessed, are simply offers to buy the home with no attached contingency. There are, depending on the offer, no appraisals or home inspections, and a non-contingent offer may also have no requirements for a mortgage approval.
Non-contingent offers can be structured in many ways, but there are some important things to know if you are going to move forward with a non-contingent offer.
Key Things Every Borrower Should Know about a Non-Contingent Offer
Thinking a non-contingent offer would be right for you? Here are a few things to remember as you move forward with your purchase…
They Can Be Risky…
The first thing you should understand about non-contingent offers, the factors that all buyers need to consider, is that these types of purchases can come with greater risks. This is especially true when you are waiving the right to inspections. You simply never know what problems a home may have; you can’t know if the roof needs a repair, if the electricity is outdated, or the foundation is seeping.
An inspection is intended to help you discover these problems before you buy, to help you fundamentally understand what you’re purchasing. Without these inspections, your purchase has much more risk. But by taking on this risk, you enjoy a unique benefit.
…But a Non-Contingent Offer Increases Your Chances of Having an Offer Accepted
The other thing you need to know is that when you take on more risk, in this case by avoiding contingencies, you have a better chance of winning a home. In real estate markets where homes are selling at a rapid pace, it can seem nearly impossible to have an offer accepted.
A seller receives dozens, possibly hundreds of offers, and they get to select the best one. An offer that has no contingencies is more attractive, as the buyer is all but guaranteed that the sale will go through.
Non-Contingent Offers are Usually Faster
This is deeply connected to the first point: non-contingent offers are usually faster. Depending on the nature of your offer, there is no mortgage approval to go through, no time-consuming appraisals that need to be completed. No inspections could delay the final purchase.
All of this results in a faster process so you can make the purchase and start moving into your new home sooner. A fast purchase process is also attractive to sellers, who are typically motivated to sell a house fast so they can move on with their lives.
Not All Lenders will Allow for No Appraisals
An appraisal is a critical part of the loan process. Lenders need to know that the home they are lending money against has a strong value. In the rare event that the mortgage cannot be repaid and the bank has to seize the property, an appraisal ensures that the home has value and the financing company can recoup their losses. Again, this is extremely rare, but to reduce risk, lenders of all types usually require an appraisal.
As far as a borrower is concerned, this means that it can be difficult to complete a loan-based purchase without an appraisal. There are, however, certain products, as well as different lenders, that help you skip an appraisal.
A Non-Contingent Offer Can Reduce Your Overall Costs
If all goes well, skipping contingencies can result in lower costs. Appraisals, for example, cost money, usually a couple hundred dollars. Inspections can also cost a bit of cash, and all of these little expenses can add up quickly. By waiving the contingencies, you could save $1,000 or more.
Skipping Inspections? Probably Best for Newer Homes
You can do a non-contingent offer on virtually any home, but if you are skipping the inspections, it’s probably best to do so only on newer houses. Homes that are decades old, and certainly ones that are over 50 years in age, are more likely to have wear and damage. With a newer home (preferably not brand new, as they can have their own, currently-unfound problems), you are less likely to see these issues.
Helping You Purchase a World-Class Home in Any Market
If you are ready to make a non-contingent offer, let our team help. We are experienced in giving buyers an advantage in highly competitive markets, delivering financing that removes many of the barriers to a home purchase.
