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Calendar - not so straightforwardWhy is it that some buyers write offers with no contingencies whatsoever, but others want a very long contingency timeframe – 14 or 17 days – even if there are disclosures and inspections available up front, for the property condition or loan contingency?

Sometimes the length is a reflection of fear, of either the buyers or their lender (or in some cases, their agent or family member).  What’s the worry? For example – if it takes a week to get the home inspector out to the house, and the inspector calls for further inspections, perhaps more time than a week will be needed.

To counterbalance that fear, home sellers can have home, pest and other inspections reports done and available prior to the home going on the market.  An important thing to remember is that confident buyers pay more, and scared buyers pay less for a home.  Remove fear and the price tends to go up – and the contingency time frames (at least for inspections) goes down.

Sometimes the long contingencies reflect other concerns or may reflect hidden contingencies. What does that mean?  Today the Silicon Valley real estate market is extremely competitive, and many buyers are writing offers without appraisal or other contingencies.  But if one contingency, say for property condition, is long enough, then the buyer may use that contingency as an excuse (albeit in bad faith) to get out of the contract if there’s a problem with the contingency which supposedly was waived in the contract, such as the loan or appraisal.

For sellers, there’s no sense of relief until the last contingency is removed, so if there’s no loan or appraisal contingency, but a 2 week contingency for property condition (inspection), that’s two weeks of worrying that the transaction will fall through. Whether or not they suspect a concealed contingency, they understand that it’s not yet a sealed deal, and they worry.

Buyers, should you try to use a long property condition contingency to “cover yourself” if you write an offer with no contingency for loan, appraisal, or both?  I do not suggest this.  First of all, it is not truthful, and you risk a number of things.  The sellers may catch on and not want to negotiate further with you should you want or need some repairs in escrow.  Second, you may leave yourself open to a potential risk with your initial deposit. (Real estate agents who operate this way will risk ruining their reputation and find themselves viewed as lacking integrity.)

In multiple offer situations, buyers will find their offers rejected if any contingencies go past about 10 or 12 days.  In those cases, often the buyers feel stressed and pressured, unable to really breathe in escrow since there’s such a rush to make a final commitment – even if not fully safe.   The reason it happens, though, is because sellers want to know that when their home is sold, it is really sold – and the buyer won’t later back out.  When there aren’t multiple offers, though, sellers do not have that same leverage, and sometimes one or more contingencies may be longer than the seller is comfortable with at all.

The pendulum can swing either way with the market.