Blog by David Bergman

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Should you have contingencies when you offer to buy a home

When you write an offer to purchase a home you make many choices.  One of those choices is do you have any contingencies?  A contingency is a right to cancel the agreement based on certain conditions.  You can have a physical contingency such as a property condition contingency.  A contingency can also be based on a non-physical condition such as obtaining financing or the property appraising at or above a certain price.  A contingency can be based on anything.  In the PRDS and CAR contracts commonly used in the Silicon Valley area of California there are standardized contingencies.   Those contingencies give you time as a buyer after the purchase contract is accepted to dig deeper and look at things.  With offer due dates and multiple offers in our current market – listing agents have disclosure packages ready for buyers to review before the offer date.  If the disclosures are complete and the reports were done by reputable inspection companies – there is less risk to the buyer who chooses no contingences.  But there is still risk – and buyers need to understand these risks.  

That is a quick summary of what contingencies are – but now for the real point of this read.  In the current competitive market where there are too many buyers for each home, if you want to be the winning bidder you may need to have zero contingencies.  That means that if your offer is accepted then you may have no right to cancel.  If certain conditions exist in simple terms you may forfeit 3% of the purchase price, which is $60,000 if you are buying a $2 million dollar home if you default on a purchase agreement.  Pretty significant – and nothing to take lightly.   

Not including contingencies in a purchase contract is certainly against my advice and any other good brokers advise – but buyers will find it necessary to take that risk in situations where there are many buyers for each home.  

But as in life there are exceptions – and in real estate a less experienced listing agent may make some mistakes that make even a non-contingent offer cancelable by the buyer.  I will write about that in a later article.

Talk to your attorney and real estate agent before deciding how to proceed.  Hopefully this very simplistic overview of contingencies gives a good overview of one phase of the purchase process.