No Contingency Meaning: When & Why Buyers Waive Contingencies

Contingencies are often a decisive factor in real estate transactions. When included in a purchase agreement, they define the conditions that must be met for the transaction to progress to closing. For example, home inspection contingencies require the house to undergo a full inspection for safety and functionality prior to the purchase. 

However, some sellers opt for a “No Contingency” sale, meaning the homeselling process is simpler and free of extra steps. While non-contingent offers can repel some buyers, there are several reasons why a seller may prefer these. 

In this post, we’ll briefly recap the most common contingencies you’re likely to encounter, what can happen if you waive them, why a seller may prefer an offer with no contingencies, and how buyers can navigate them.

What Happens When You Waive Home Sale Contingencies

So what is the meaning of no contingency in your homebuying journey? Here are the 5 types of contingencies you’ll see most often in a real estate contract and what happens if you waive them.

1. Financing Contingencies

We strongly recommend getting a pre-approval for a loan. However, getting pre-approved doesn’t guarantee the funds you’ll need to purchase your dream home.

Financing contingencies (a.k.a. mortgage contingencies, home loan contingencies, etc.) protect buyers if they cannot secure a mortgage loan in the agreed-upon time frame.

If you waive this contingency clause, you won’t be able to back out of a purchase agreement if financing falls through. If it does, you’ll be obligated to surrender your earnest money deposit or buy the home at the agreed-upon purchase price, regardless of whether or not you have the money.

According to the National Association of Realtors, 35% of real estate transaction delays come from buyer financing complications.

2. Title Contingencies

A home’s title is its record of ownership, providing information about who the past and current homeowners are. By performing a title search, you can identify if a home’s title is clean or if there are any liens or property disputes. If a kitchen contractor is owed $25,000 or an undisclosed heir claims that they have a right to the home, a title contingency gives a buyer a way out of the sale.

By waiving the title contingency, the new homeowner will assume responsibility for any liens owed. They risk ending up in a costly legal battle with anyone else who may have a right to homeownership. As stressful as the homebuying process can be, it’s nothing compared to fighting to keep the home you just purchased.

3. Appraisal Contingencies

Appraisal contingencies provide you with a legal escape route if the appraised value of a home deviates from the agreed-upon sales price. If the appraisal comes in too low, there’s an appraisal gap, and the mortgage lender might not loan the potential buyer the amount of money they need to close.

Many lenders will require an appraisal before home loan approval because they don’t want to lend you more than the home’s value. If, as a buyer, you proceed with the home purchase without an appraisal contingency, you will be required to pay the difference between the purchase price and the home’s appraised value.

For example, if you buy your new home for $800k, but its appraised value is only $750k, you’ll have to pay the $50k difference. If you don’t, you’ll risk losing your earnest money deposit.

Sometimes, you can waive your appraisal. When you do, you could buy or sell a home for far more or less than it’s worth, so do so at your own risk.

4. Home Inspection Contingencies

Homeowners are responsible for everything in their house, flaws and all. No one wants to discover that their new home requires $25k in repairs to get things up to code after they move in. Home inspections identify potential problems with a house that may be invisible to the naked eye.

By waiving the inspection contingency, you risk buying a home needing significant repairs without knowing it. Buyers then lose their negotiating power because they can’t require sellers to make those repairs or lower the home’s purchase price.

5. Home Sale Contingencies

Some homeowners need to sell their current home in order to come up with a down payment and financing for a new one. By including a home sale contingency in your purchase contract, you won’t be required to buy the new home until the sale of your current home is complete.

With no contingency in place, you will be forced to either surrender your earnest money or purchase the new home, regardless of whether or not the sale of your current home goes through.

Why Sellers May Only Accept Non-Contingent Offers

There are a few reasons sellers may require an offer with limited or no contingencies.

It’s a Seller’s Market

The housing market follows the basic fundamentals of economics: supply and demand.

In a seller’s market, more buyers than homes are available, giving sellers a distinct advantage. This usually results in sellers receiving multiple offers, and bidding wars are common.

No contingency offers can make a buyer’s offer stand out because they minimize the number of hoops you have to jump through. Sellers won’t have to wait for a potential buyer to secure financing or sell their current home before closing on a new one.

Sellers Want to Sell “As-Is”

If a seller lacks the means to make repairs or simply isn’t interested in doing them, they may decide buyers to purchase their home “as-is.”

An “as-is” designation attracts real estate investors, like house flippers, who often make all-cash offers.

Sellers Who Prefer Cash Offers

Some sellers request cash offers rather than working with buyers who require traditional financing. Cash offers usually require fewer contingencies because these types of buyers don’t have to worry about securing financing beforehand.

Sellers Want to Sell Quickly

Contingency periods often slow down real estate transactions. You may have to schedule home appraisals, negotiate or make repairs after a home inspection, or wait for a buyer to sell their current home first. With no contingencies in place, you can expedite the process rather than spend months trying to sell your home.

How Buyers Should Navigate No-Contingency Clauses

If you’re in a highly competitive market, making an offer with no contingencies can give you the advantage to get the home of your dreams. You can also do so without blindly entering a real estate contract.

If you’re entering into a deal with a no-contingency clause, you can take strategic steps to mitigate the associated risks. Before making an offer, make sure you’re pre-approved for the financing you’ll need to secure a loan.

Buyers should research the local real estate market to see how much comparable homes are selling for in the neighborhood. Even if you don’t get an appraisal, you’ll have a rough idea of how much the home may be worth.

You can also request to see the home before making an offer. For extra credit, bring a home inspector with you. While they may not be able to do a full inspection, their expertise can provide you with more insight regarding the condition of the home.

While contingencies protect buyers from being required to buy a home or risk losing their earnest money deposit, taking the above precautions will minimize the risks associated with no-contingency clauses.

How Aalto Can Help

Whether you’re a seller who prefers no contingencies, meaning your home sale goes quicker, or a potential buyer who wants a competitive edge, Aalto’s team of experts is here to help!

At Aalto, we can handle your contracts and negotiations so your homebuying experience is as stress-free as possible. Are you ready to sell or buy a home and save tons of money in realtor fees? Sign up with Aalto today!