When bidding, contingencies make a difference

In a housing market lean on inventory or listings, buyers are competing with one another to bid on properties and sellers are finding that the highest bid is insufficient in getting a home.

In the end the one that’s going to win is the best bid with the fewest contingencies. In fact, some buyers may take a slightly lower or same bid if it is free of contingencies.

Typically, in a sales contract, a mortgage contingency gives the buyers protection or an “out” if they cannot obtain a loan in a specified time frame. A buyer who cannot perform or get a mortgage can be released from the contract without sacrificing the down payment. What is a customary down payment? It is now varying as a percent.

Sellers in this competitive market with challenging lending requirements are looking for offers with fewer contingencies or cash. Sellers want to minimize their risk of having their properties off the market while a buyer seeks financing with no guarantee of getting it. Sellers don’t want to take the risk that a buyer may not get a mortgage and lose time selling their home.

On the other hand, buyers who need a loan to buy a home should have a mortgage contingency. Should they be unable to get a mortgage, they could otherwise forfeit their down payment. Buyers needing a mortgage to purchase a home can be more attractive to a seller by being pre-qualified for a mortgage and starting the mortgage process. In this way, they can remove the mortgage contingency faster than if they hadn’t prepared to get a loan.

In multiple bid situations, the listing agent often asks what percentage of the home’s purchase price is going to be financed. By doing this, the listing agent is trying to gauge the risk because the less borrowed, the more likely the buyer will get the loan barring any other credit problems.

A seller may prefer a buyer who waives the mortgage contingency or is willing to put more than 25%-30% down. Most sellers realize, however, that even if the buyer getting a loan decides to waive the mortgage contingency, there is still a risk of the buyer not being able to perform.

Sellers are often advised to try to entice other buyer(s) to be a backup to the selected buyer. In this way, if the selected buyer fails to perform, or introduces terms and conditions that are not acceptable in the contract phase, the seller can try to put together another deal. Often buyers offer to be a backup to those selected in case the deal falls apart.

It is not recommended to waive building, pest and state-required radon inspections if the home is not be razed or leveled. Some buyers are requesting inspections from sellers prior to submitting a bid to remove that contingency from the offer without assuming associated risks.

The sellers, of course, have to agree to these inspections.

Buyers should be sure they like the home or property that solicits multiple bids. They should also work with their Realtor in securing all the information available to make an informed decision (i.e., comparables, potential to expand or develop the home, and what, if any, restrictions apply to the property).


Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected] 

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