Should I Remove The Contengencies In My Offer?

It is almost April of 2013 and the housing market out here in Los Angeles has become very competitive. There is a larger difference between the number of houses on the market and the number of buyer out there. Some of the areas I specialize in are getting large numbers of multiply offers on homes that are marketed well and buyers are needing to step it up if they really want a particular house. So what are some of the things that I'm seeing buyers are doing in hopes to get their offer accepted? Well, there is the almighty all-cash-king. This one seems to help the sellers accept an offer pretty frequently. But there aren't a lot of buyers out there that can buy a house with all cash, so what are the rest doing to gain a seller's interest? Well, quite frankly, some buyers are removing some or all of their contingencies on an offer to keep themselves in the running for owning a home. So what does removing contingencies really mean and is it something I should do in order to get a house? Well folks, this is a very slippery slope I'm about to discuss here.

First off, there are three major contingencies in a Purchase agreement, or an offer. There is the loan contingency, an appraisal contingency, and an inspection contingency. According to Merriam Webster's dictionary, the definition of contingent is-dependent on or conditioned by something else. 
These contingencies are put into the contract to protect the buyer from unknown obstacles that can occur during the purchase. Buyers are not 100% guaranteed that they will be able to get the loan they were pre approved for on any house. There are a lot of factors that determine whether or not a lender will actually give a loan. Therefore, there is a contingency for obtaining the loan. Same goes with an appraisal which is directly tied in to getting the loan. A lender needs to know that the value of the house is there before they give that amount of money out for a loan on a home. So, same thing again as before...that is why there is an appraisal contingency. And so on with the inspection contingency as well.

So, let me say it again...the contingencies are there to protect a buyer.  Just as a deposit is there to protect a seller. And guess what is at risk if you remove contingencies?...you guessed it. Your deposit.  But let's say that you've heard that if you remove a contingency that there are still time periods and other things in the contract that are there to protect you as a buyer. Well, yes and no. These decisions of removing contingencies should only be considered on a case by case, person by person situation. I would not feel comfortable as a Realtor just suggesting to anyone of my clients that they do this without fully explaining what it means and what the consequences could be.  And I surely would not throw this out blanketly as a strategic maneuver to get an offer accepted. Try to imagine like this: When purchasing a home you place your deposit in a box behind three brick walls. And lets say those walls represent those three contingencies.  If you start off your offer with one or more of those walls missing, that is the level of protection your deposit has left.  Now this way of going about writing an offer can work out very well for the right person, but please have this talk with your Realtor and get all the facts you can before moving forward with these options. And, just so you know, there are other ways of getting your offer accepted in this competitive market. After all, in the past month, I have had two offers accepted in a multiply bid situation and neither of them removed any contingencies and neither of them were the highest offer. I'm not going to give away my secrets here but if you are out looking to purchase a home right now, maybe you should give me a call!