The pandemic and high unemployment rate haven’t slowed the housing market. With home buyers facing heightened competition this summer for a limited number of homes for sale, some have decided to try to gain an edge by waiving contingencies to make their offers more competitive.
In June, nearly 20% of successful offers submitted by Redfin real estate professionals in select major U.S. markets reportedly waived the inspection contingency, compared to 13.2% during the same month in 2019. Further, 20.6% of winning offers waived the appraisal contingency, up from 17.4% a year ago.
Home buyers are waiving the contingencies to make their offers more attractive to home sellers. The inspection contingency allows the buyer to cancel a purchase or request repairs during the inspection period. The appraisal contingency allows buyers to cancel a deal or renegotiate the price if the appraisal comes back lower than the specified amount. Both an inspection and appraisal contingency are used in offers to protect home buyers in a transaction.
But with bidding wars on the rise recently, buyers are trying to make their offers more competitive. More than half—53.7%–of Redfin offers faced competition in June, according to the brokerage’s research. Mortgage rates, which fell below 3% for the first time ever this month, may be driving some demand. But buyers are facing tight inventories of homes.
“Today’s market remains tipped in favor of sellers as would-be spring buyers are shopping well into what would normally be summer vacation season,” Danielle Hale, realtor.com®’s chief economist, said in a recent report on realtor.com®’s Weekly Recovery Report. “Home buyers, trying to take advantage of record low mortgage rates and make up for lost time, are finding limited and more expensive options. Although sellers are slowly acclimating to this unexpected surge in buyer interest, inventory is still lagging behind demand, which is driving quick time on market and listing price growth on par with this time last summer.”
“The situation is out of control,” adds Lindsay Katz, a Redfin real estate professional in Los Angeles. “I put a house on the market the other day and within about 24 hours I already had 42 showings booked.”
Katz says she recently sold a home listed at $685,000 to a buyer who triumphed over 11 other bidders by waiving the appraisal and inspection contingencies. The buyer also agreed to get their loan approved in 10 days and paid $770,000 for the home.