What it means when you’re buying with no contingencies

Are you trying to buy a home in a hot real estate market? If you're considering your options when it comes to buying a home, you might be thinking about making an offer with no contingencies. While it does make your offer look more enticing, it's not without risk. 

What is a contingency, anyway?

In real estate, a contingency is a clause of the Agreement of Sale on a home that needs to be met for the purchase to close. Contingencies are used to safeguard home buyers and protect you from the most significant risks you face when buying your home. 

If the conditions outlined in the contingency clause aren’t met, you can break the contract without facing financial repercussions. But, in a seller's market, making an offer with too many contingencies may make you look less desirable. Learning about the different types of contingencies can help you determine which ones you should include with your offer. 

What are the most common types of contingencies? 

Contingencies can help buyers get out of some less-than-ideal situations. The most common contingency clauses that could allow you to break your contract are: 

• Inspection contingency: Protects you if the home you are purchasing is in worse condition than you thought or needs major repairs 
• Home sale contingency: Used to provide you with time to secure the sale of your current home (if you have one)
• Financing contingency: If you are unable to qualify for the mortgage you need to afford the home, a financing contingency would protect you and your deposit 
• Title contingency: If the seller is unable to transfer the title to you without issues, a title contingency protects you from having to purchase the home and assume responsibility for the seller's debt. 

Can you get your deposit back if your offer falls through? 

Nowadays, most buyers in Canada are required to put down a deposit of around 1% to 5% (in Toronto, it’s most often the latter) of the purchase price of the home. Doing so tells the seller that your finances are in order and you're serious about buying the home. 

But, if your contingencies are not met, the deposit should be refundable as long as you have those proper contingencies in place. If your contingencies have not been satisfied, you're within your rights to back out of the deal and can keep your deposit. 

What is a no-contingency offer? 

If you're reading this thinking that contingencies sound great, they are. But, if you're determined to make a specific home yours, a no-contingency offer does carry a lot of weight with sellers because they know exactly what they're getting out of the deal. Either they sell the house or walk away with your deposit, which is less than ideal for you. 

A no-contingency offer means that the seller can accept your offer without any contingencies needing to be met. But, as you may have guessed, there are a multitude of risks involved. 

What's the worst thing that could happen? 

Contingencies are meant to protect the buyer, so waiving them is a risky move--especially when it comes to any contingencies related to finances and appraisals. Here are a few things that could happen when you waive the most common contingencies. 

Waiving the inspection contingency 

If you’re buying a house, home inspections are a critical part of the home-buying process because they give you insight into things you may not see as issues with the home. A home inspector is a trained professional that will check for things like mold, structural damage, and drainage-related issues. Whatever is included in the report, you can use it to inform your offer. 

Without the inspection contingency, you would still be obligated to pay the full purchase price despite the inspection's findings—even if you don't have the funds to pay for the fixes. Or, the seller could keep your deposit if you back out of the deal. 

Waiving the home sale contingency 

The home sale contingency is an important one because, typically, people need to sell their current home before they can buy another one. If the sale of your current home fell through, you may be forced to give up your deposit without this contingency. 

Waiving the financing contingency 

Being pre-approved helps, but it doesn't guarantee that you'll be approved for a mortgage. Waiving a financing contingency is risky because you're still on the hook for the home sale, even if you don't have the funds on hand. Either way, you would likely lose your deposit because you put the money down based on the premise that you would have access to financing. 

Waiving the title contingency 

A title search on a home will let you know who the legal owners of the house are and if there are any liens on the property (a legal right against the house that is used as collateral to satisfy debt). 

If you waive the title contingency and the title search unveils some issues, you’ll actually assume responsibility for the seller's debt when purchasing the home. Yikes. 

Navigating Legal Aspects of No-Contingency Home Purchases

When opting for a no-contingency home purchase, understanding the legal implications is crucial for a smooth transaction. This section delves into key legal aspects to consider:

Waiving Contingencies: Risks and Protections

Waiving typical contingencies like inspection and financing can make your offer more attractive to sellers but increases risks. Without these safeguards, backing out of the deal might not only mean losing your earnest money but could also lead to additional legal repercussions, especially if the seller struggles to find another buyer​​.

The Crucial Role of Inspection and Financing Clauses

Including an inspection contingency allows for a professional evaluation of the property, enabling renegotiation based on the findings. Similarly, a financing contingency sets a period to secure loan approval post-offer acceptance. These clauses are essential for buyer protection and should not be casually waived​​.

Appraisal Contingencies and Escalation Clauses

In a high-priced market, an appraisal contingency protects you if the appraisal value is lower than the purchase price, offering a chance for price renegotiation. Meanwhile, an escalation clause helps in competitive bidding situations, incrementally increasing your offer to a preset maximum, ensuring you remain within your budget​​.

Home Sale Contingency Considerations

This contingency links the purchase to the successful sale of your current home. While offering a safety net, it's less attractive to sellers in a market favoring them. Understanding the market dynamics is key when considering this clause​​

Title Insurance and Mortgage Approval Processes

Securing title insurance is vital to safeguard against any undisclosed claims on the property. Additionally, timely mortgage approval is crucial to avoid delays in the home buying process. These steps ensure your rights are protected and the property is legally yours​​.

Closing Procedures and Buyer's Rights

Be aware of your rights during the closing process, which includes conducting a final property walkthrough and ensuring the clearance of any liens against the property. Understanding these rights and the closing procedures can prevent future legal complications​​​​.

Importance of Location and Real Estate Expertise

Choosing the right location involves considering factors like commuting distances, public services, and future area developments. Engaging a knowledgeable real estate agent can provide crucial insights into these aspects​​.

Options When Unable to Resolve Contingencies

If a contingency cannot be resolved, you have options: waiving it, renegotiating the terms, or withdrawing from the contract. Each option has distinct implications, and understanding these is vital for making informed decisions​

The bottom line 

There are pros and cons to non-contingent offers, and they can work in your favour. With the stakes this high, it's best to enlist the help of a great real estate agent to help you determine what contingencies you need and what you could go without. 

For example, if you found the home you love but don't have the cash on hand, a financing or home sale contingency ensures you'll be able to access the funds you need to purchase the home. Or, if you have a love for historic homes, a home inspection contingency ensures that you'll at least know what you're getting yourself into and can back out if necessary. 

And if you’d like to get started on getting a pre-approval–so you know what range your budget is for buying a home–apply with Pine today and we’ll get started on your home-buying journey and help you get financially set.