In a market with tight inventory and plenty of demand, buyers are often willing to take the risk and offer contingencyfree offers in an effort to outbid the competition.
What should a seller consider before accepting an offer with no loan contingency, no appraisal contingency and no inspection contingency?
An all-cash offer with no financing contingency is a good deal only if the buyers actually have liquid funds to close escrow. Don’t be tempted to sign the contract and worry about the details later. Investment accounts that hold stocks could change value before the close of escrow, leaving buyers with less cash than they need.
Buyers should provide copies of bank statements, or a letter from a financial institution stating that they have the liquid funds required to close at the time they present their offer. If they don’t, make sure the contract requires that this documentation be provided within a couple of days of acceptance. And make sure the cash is in a U.S. bank, not overseas where the transfer of funds could take longer than expected.
All cash offers Last year we started seeing buyers make all-cash offers to win the bidding war, but later wanted to get a mortgage to close the deal. This should be disclosed in the purchase contract even if the buyers don’t include a financing contingency.
There is a big difference between buyers who have and will pay cash to close quickly, and those who say they’ll pay cash but need to go through formal lender approval. Sellers who make plans based on the terms of the contract could find themselves in trouble if less-thancandid buyers can’t close on time, or at all.
A similar problem can occur when buyers make an offer promising a large cash down payment, but change their mind at some point and decide to put less cash down, requiring a larger loan amount and changing the approval process.
Two appraisals?
The lender could require two appraisals rather than one if the loan amount is over $1 million. And the underwriting process is also more rigorous, taking more time which could delay closing.
Make sure that buyers who make offers without an appraisal contingency are willing and able to put more cash down if necessary to close escrow if the appraised value turns out to be less than the offer price. Proof of funds should verify cash reserves to cover the difference.
Offers with no inspection contingencies, while appealing, can also be problematic.
Unless the buyers have done pre inspections with the sellers’ permission, give a second thought to accepting an offer without an inspection contingency.
Even if you had presale inspections done, if something significant had been overlooked, you could end up in a legal battle later. To protect yourself, counter the offer to include a short inspection contingency so that the buyers can’t later say they bought the house under pressure and weren’t given the opportunity to inspect the property.
— Adriana Donofrio Podley Properties, Glendora 626-914-2904 adrianad@podley.com
