Waiving these contingencies is a common strategy homebuyers use to make their offers more competitive by assuring the seller that the deal will close without unforeseen hiccups and negotiations. The inspection contingency allows the buyer to cancel a purchase or request repairs if they find an issue during the inspection period. The appraisal contingency allows the buyer to cancel a deal or renegotiate the price if the appraisal comes back lower than a specified amount. In the event that a buyer waives the appraisal contingency and the appraisal comes in low, the buyer must have enough cash to cover the difference between the appraised value and offer price. These stipulations are built into standard home purchase agreements as protections for the buyer, so waiving them can put the buyer at risk.
Bidding wars have been on the rise in recent months, with more than half (53.7%) of Redfin offers facing competition in June, up from 51.8% in May and 44.4% in April. Record-low mortgage rates, which fell below 3% for the first time in history this month, are driving strong homebuyer demand amid a severe shortage of homes on the market. Active listings—the count of all homes that were for sale at any time during a given month—dropped 20.7% year over year in June, the 10th-straight month of declines.
"I put a house on the market the other day and within about 24 hours I already had 42 showings booked," said
Katz recently sold a home, listed at
The share of offers that waived inspection contingencies dropped to 15% in April from 23.1% in March, with the share of offers waiving appraisal contingencies seeing a similar decline. This is likely because buyers were seeking out flexible arrangements due to the uncertainty caused by stay-at-home orders, according to Redfin lead economist
Waiving contingencies isn't the only way buyers can make their offers more competitive. About 20% of Redfin agents say that having a buyer write a personal letter to a seller has helped them win a bidding war, according to a July survey of nearly 400 agents. A similar share said that a good relationship with the listing agent came in handy, while 8% mentioned so-called rent-back agreements, in which the buyer rents the house back to the seller after closing—sometimes without charging any rent at all—so the seller has ample time to find their next home.
Some buyers are devising rather unorthodox strategies to win bidding wars.
"The market was totally dead during the first two weeks of March, but since mid-April, the phone has been ringing off the hook," Wile said. "Now everyone is prepared for a bidding war."
To read the full report, including charts, please visit: https://www.redfin.com/blog/waiving-inspection-contingency-wins-bidding-wars.
Redfin (www.redfin.com) is a technology-powered residential real estate company, including brokerage, iBuying, mortgage, and title services. Founded by software engineers, we run the country's #1 most-visited brokerage website and offer a host of online tools to consumers, including the Redfin Estimate. We represent people buying and selling homes in over 90 markets in
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the
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