Why would you make a real estate offer with no contingencies?

On Behalf of | Nov 29, 2023 | Real Estate Law |

Generally speaking, an offer to purchase a piece of real estate is going to have a contingency clause. This can be true for both commercial and residential purchases. These clauses are used to protect the potential buyer.

For example, perhaps you already got pre approval on the loan that you need for the property, but not final approval. You’re not buying it with cash, so you don’t have the money on hand. You need to get the mortgage. You could put in a contingency clause stating that you’re not bound by the agreement unless you are approved for financing. Another common clause says that the purchase doesn’t have to go through if the building fails inspection.

Making a competitive offer

Considering how helpful these clauses can be, you may wonder why anyone would ever remove them. Usually, the reason is just to make the offer on that property more competitive.

After all, sellers know that contingency clauses increase the odds that the deal will fall through. That’s what they are trying to avoid at all costs.

In a competitive market, that seller may get multiple offers that are all virtually the same in terms of financial compensation. In order to make their offers stand out, some buyers will take the risk of removing contingency clauses. They are simply hoping that the property doesn’t fail inspection and that they are approved for the mortgage. But if the money is the same, that seller would usually prefer to have the offer without the contingency clause.

This isn’t to say that you should remove them when making a purchase, but just that it’s important to understand how they work, why they’re used and why they may not be used in some situations. Be sure you carefully think about all the legal steps you’ll need to take during a real estate transaction.