Understanding Non-Contingent Offers | Tuscana Properties

Let’s Talk About Real Estate Non-Contingent Offers

You may have heard of contingent and non-contingent offers when it comes to buying a home, but it can be confusing to know exactly what these terms actually refer to.

Let’s start by simplifying this topic. What does non-contingent mean?

“Non-contingent” means something which doesn’t depend on another circumstance.

In real estate, home buyers make non-contingent offers to basically tell the home seller, “I am going to buy this property, regardless of what happens.”

This means that the buyer is accepting higher responsibility and a level of commitment to the home seller.

So what does contingent offer mean? In contrast to non-contingent, “contingent” does mean “depending on other circumstances.” In real estate, contingent offers have certain additional criteria that need to be met before the deal is considered complete.

There’s no one right option for contingent or non-contingent offers, but they both have pros and cons. In this guide, we’ll talk about the difference between the two and how you can determine which is the right choice for you.

Our guide to non-contingent offers in real estate

Non-contingent offers have a time and place where they make sense 

Why do buyers want to make non-contingent offers?

Non-contingent offers may seem like a large commitment right out of the gate, but there are certain benefits and reasons why people make non-contingent offers at all.

These offers signal to home sellers that you are committed to completing the sale and are willing to shift more risk to the buyer’s side. Of course, that’s a risk, but it’s attractive to home sellers. They may be willing to prioritize a buyer who makes a non-contingent offer over someone who has a lot of contingencies that may hold up the sale of their home.

Why do sellers prefer non-contingent offers?

To a seller, a non-contingent offer is kind of a win-win. Your buyer has essentially locked themselves into a much tighter agreement, where the terms are in your favor, compared to a normal real estate transaction.

In a nutshell, real estate non-contingency offers don’t favor the buyer. The one thing that buyers get in these circumstances is prioritization. A non-contingency offer is quite attractive to sellers.

Contingent Offers vs Non-Contingent Offers

Imagine you were selling your old car. It’s not in perfect shape, but it runs well enough. You have two buyers who want to take it home.

Buyer 1 will buy it, but their offer is contingent on two things. They want you to show them a clean bill of health from the local auto mechanic. They also want the car to be fully cleaned before they drive it away.

Buyer 2 will buy your vehicle and their offer is non-contingent. They will hand over the cash in return for the keys and ownership papers; it's as simple as that.

For you as the seller of the car, Buyer 2 is likely more appealing to you, right? You don’t need to get the car cleaned or track down a mechanic who may reveal that there’s actually something wrong with the car, derailing the whole sale.

It’s basically the same thing in real estate, but the stakes are much higher and the contingencies are more serious. 

That being said, that doesn’t mean that non-contingency offers are never the way to go. New properties carry less risk and so a non-contingent offer might be a practical tactic to buy a home in a competitive market. Or, if you know that you want to gut and remodel the home regardless, unearthing any issues with the home may not be a priority for you, which may lead you to waive those contingency requirements.

Savvy local realtors may decide that sometimes, non-contingent offers make sense, like buying a certain property in a hot market.

Main Kinds of Non-Contingent Offers in Real Estate

In California and Santa Clara real estate, a non-contingent clause is part of a Removal of Contingencies with an Offer or a Contingency Removal.

Let’s say that a home buyer falls in love with a home, but there’s a chance they are outbid and lose it to another buyer. This is when some knowledgable realtors might recommend a non-contingent offer, depending on what they know of the property.

Home buyers can waive some or all of the following main contingencies:

Home Investigation/Inspection Contingency

One of the most crucial aspects of buying a property is getting a home inspection. Waiving your right to an investigation with a non-contingent offer is a calculated risk that you undertake with guidance from a real estate professional.

Savvy buyers sometimes proceed with a home inspection, but include in the real estate contract that their decision doesn’t hinge on the results of certain damages, perhaps under $500.

This allows them to get the home inspected for anything dangerous, such as mold. At the same time, the sale is not dependent on the results (within certain terms) so the non-contingent offer is attractive to sellers.

Appraisal Contingency

If a buyer waives the appraisal contingency, it can expose them to extra costs. Let’s do a simple example to explain this.

A home in San Jose is listed for $1 million. It’s a lovely property and a buyer decides to make an offer of $1 million.

But the story doesn’t end there. The buyer needs a loan to purchase the home, so he heads down to the local lender. When this happens, the lender must send an appraiser to the property.

A lender does not want to lend more money than the home is worth, which is why the need to appraise its value.

The appraiser comes back to the lender with shocking news. The home is only worth $800k on the current market.

When this happens in the real world, the buyer can walk away from the deal, thanks to an appraisal contingency. If the buyer chooses to proceed, they must cover the difference between the appraisal and the offer. In our example, that means $200k.

With an appraisal contingency, the buyer can walk away from the deal in this case. With a non-contingency offer, the buyer must cover the difference, which can expose them to financial risk.

Mortgage/Loan Contingency

In most real estate transactions, the buyer can walk away from the sale if they do not receive financing in time. This helps shield buyers from being on the hook for massive amounts of money. If the bank or lender refuses to support your loan or mortgage, it’s great to have a contingency plan.

If a buyer makes a non-contingent offer on a home, you can imagine the risks. Most of the time, buyers who make a non-contingent offer have already thought about this possibi

is they may have a high level of certainty that their loan or mortgage will be approved, or they may already have their loan approval in hand.

If you already have your approval or are very confident that you will, you may be comfortable accepting the risk of waiving this contingency. If you aren’t approved yet or have any concerns about getting your loan approved, this contingency may be a good one to keep.

Buyer’s Home Sale Contingency

Some buyers use the proceeds from one home sale to buy their next property. If an offer is contingent on this, it means that the buyer will only proceed if their previous home sells. Buyers can use their profit to cover moving costs, deposits, and other real estate expenses.

If the offer is not contingent on the buyer’s home sale, the buyer is locked in, even if their previous home fails to sell. This can be a relatively small problem, or a serious one, depending on the homebuyer’s situation

Does a Non-Contingent Offer Make Sense?

We talked about some of the risks that a non-contingent offer carries, but this is not a one-size-fits-all situation. There are definitely times when this kind of strategic offer carries less risk and makes the most sense.

There are ways to have non-contingent offers with extra protections too, which you should discuss with a realtor. When you enter the world of real estate contracts and negotiations, it’s best to have experience on your side.

If you’re thinking about making a non-contingent offer, reach one of our realtors for a no-obligation consultation. The internet has answers, but none of them are tailored to your situation. When you’re chatting with a realtor, they will be.

More Questions about non-contingent offers? Follow-up With Us!

If you have more questions about what to expect from the markets around the Bay Area, don’t be afraid to reach out to us today. Our experts are experienced in all property types and the entire San Francisco Bay Area, and we can help you to find what you need to know today.

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