Compared to a year ago, a contingent offer may be less likely to threaten a sale, according to an analysis from the real estate brokerage Redfin. Fewer buyers waived financing and inspection contingencies in May than they did last year.
In May, 14.6% of successful offers submitted by Redfin agents waived the inspection contingency, which is down from 19.8% a year earlier. Meanwhile, nearly 12% of buyers waived the financing contingency, down from 13.2% a year prior.
Buyers may be tempted to waive contingencies in highly competitive markets in order to make their offer look more attractive and avoid any hangups and negotiations in situations with multiple offers. Inspection contingencies, for example, allow a buyer to cancel the deal if something surfaces during the inspection period; a financing contingency allows buyers to cancel their offer if their financing falls through, like if an appraisal comes in below the purchase price.
“Sellers are more willing to give buyers what they want because sellers don’t have as much negotiating power as they did a year ago,” says Daryl Fairweather, Redfin’s chief economist. “Last year, sellers would often receive multiple offers and had their pick of the litter. Now that they have less control of the market, sellers are taking on more of the risk from the buyer—like the risk that the buyer can’t sell her own home, or the risk that something unnerving is found during the inspection.”
About 74% of transactions had a contract contingency in May, according to the REALTORS® Confidence Index. The most common contingencies involved home inspections, obtaining financing, and getting an acceptable appraisal.
Home-sale contingencies—which are used by buyers who need to sell their own home in order to buy a new one—are also increasing. In May, 8.4% of successful offers submitted by Redfin agents included a home-sale contingency, up from 4.4% a year earlier but down from 8.5% in April.
“Typically, a seller won’t even consider an offer with a home-sale contingency during the first week or two that the home is on the market,” says Glenn Rickel, a Redfin real estate professional in the Chicago area. “If the buyer is not already under contract with the home they have to sell, they’re asking a big favor of the seller to take their home off the market for two months or more and hope that the buyer’s home sale goes through smoothly. Now that more homes are taking longer to sell, it’s become easier for a move-up buyer to find a home that has been on the market for a few weeks or a few months, which makes the seller a lot more likely to accept an offer with a home-sale contingency.”