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Contingencies Coming Back? Market Is Shifting

Buyers have removed contingencies in order to woo sellers. If you’re seeing those returning, it suggests that your market doesn’t favor sellers quite as much.

CHICAGO – The National Association of Realtors® (NAR) estimates that about 20% of homebuyers excluded contingencies in their offers in 2022 – usually because buyers wanted to stand out to the seller and make their offer more attractive.

A contract can have multiple contingencies for both the buyer and seller, depending on the state and the contract. While each case is contract-specific, many contracts will automatically terminate if some types of contingencies are not met.

Buyers’ contingencies tend to feature outs or negotiation points for the buyer. The more certainty – meaning, in part, fewer contingencies – a buyer can give to the seller, the more likely the seller will move forward with an offer. This is where full appraisal gaps or no appraisal contingencies are likely to emerge, along with as-is sales with no inspection contingency.

Conversely, contingent offers based on a contingent property typically occur when a buyer has to sell a property they currently own to buy the next property. The buyer’s offer is contingent on them selling their house to buy, which means a domino effect can be created. If the buyer fails to sell, they cannot buy, then the seller cannot sell or buy, and so on.

As the market has started to shift toward a more neutral market, buyers are regaining some power again and able to use contingencies to better protect themselves. As the market shifts, even in red hot markets, more contingencies are likely to appear as part of the process.

Source: Inman (07/08/22) Weinstein, Bert

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