As the inventory of for-sale homes remains at low levels, sellers are getting more comfortable at the bargaining table and telling buyers to cool it with the contingencies. In competitive situations that attract multiple bids, some sellers are even telling buyers they want an offer without mortgage contingencies.
A mortgage contingency, often included in sales contracts, provides buyers with a safety net of being able to get out of the deal without forfeiting their down payment in case they are unable to obtain financing within a certain timeframe.
Some sellers are telling buyers they want non-contingent offers — and better yet, make it all-cash too.
“When you have a market that’s heating up, sellers feel emboldened to say to buyers, ‘I’m not going to give you this clause because I don’t want to take the risk that you can’t get your mortgage,” Marc Israel, the executive vice president of the title insurer Kensington Vanguard National Land Services, told The New York Times. “The last thing sellers want to do is tie themselves up with a buyer for some extended period of time just to have the buyer cancel the contract.”
This has put some buyers in a risky spot. If their financing is delayed or denied for any reason — which isn’t that uncommon in a tight lending environment — buyers may be left with having to turn over their down payment.
Peggy Aguyao, an executive vice president of Halstead Property, says in New York it’s not uncommon for even higher bids to be passed over by sellers in favor of lower bids because they are non-contingent or all-cash offers.
Gea Elika, a principal broker at Elika Associates, an exclusive buyers’ brokerage, says his brokerage never advises clients to proceed without a mortgage contingency. For those clients who insist, “we’ll try to go to a major lender that’s preapproved the building in the last three months. Then we may try to find a portfolio lender as a backup.”
Source: “Mortgages: When a High Bid Isn’t Enough,” The New York Times (May 9, 2013)
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