The Fairfield County residential real estate market is still hot and very competitive. There is extremely low inventory of houses available for sale resulting in houses going to contract within days of being listed. Buyers are doing everything in their power to make their offer seem as attractive as possible to the seller. But how much is too much? As a buyer, do you understand the risk associated with your offer? Below are the two most common contingencies we see buyers waiving in this market and a discussion of the risk of making an offer without these contingencies.

The Mortgage Contingency

As a buyer, you can make an offer without a mortgage contingency and still obtain financing for your purchase. An offer with no mortgage contingency does not mean that you have to pay cash. However, unless you have sufficient funds to purchase your new home without a mortgage loan, the risk with making an offer with no mortgage contingency is that your mortgage application might not be approved. There are two main reasons that your mortgage may be denied: (1) the bank doesn’t feel that you have strong enough credit or income; or (2) the bank decides the house you are buying won’t support the loan, or, in other words, the house does not appraise high enough.

Generally, if the issue is the appraisal, the bank will offer you a smaller mortgage. Then the question becomes – do you have sufficient cash to make up the difference in the loan amount and the contract purchase price? If you don’t have a mortgage contingency and the house appraises for less than the contract purchase price, you still have to pay the contract purchase price. Some buyers will attempt to mitigate the appraisal risk by using an appraisal contingency rather than a mortgage contingency but, note, that in this competitive market even appraisal contingencies are being turned down on properties that receive multiple offers.

If your lender declines to lend you the money that you need to close on the purchase and you are therefore unable to close on the purchase as scheduled, you risk losing your deposit (normally 10% of the purchase price). Working closely with your banker or mortgage broker and honestly disclosing all of your assets and your liabilities before you put in an offer can go a long way toward determining how much of a loan your income and assets will support. Note that a “pre-approval” does not mean that the bank has fully vetted your financials, and even with a pre-approval your loan can be turned down. A pre-approval can give you some comfort that your financials support the loan that you are applying for, but a deeper conversation with your lender is prudent if you are considering waiving your mortgage contingency.

The Inspection Contingency

There are a number of different approaches that buyers can take regarding inspections. With a full inspection contingency, the buyer can bring up a list of items that need to be repaired and ask the seller to either repair the items prior to closing or provide the buyer with a credit. Some buyers try to signal to sellers that they will not raise minor items by stating that they would like to do an inspection “for informational purposes only” or “for health and safety issues only.” With both of these types of inspection contingencies buyers are protected if there are major issues with the home such as a leaking oil tank, mold, a roof that is about to fail, etc. but will need to move forward if the  inspection reveals only minor issues such as leaking faucets or non-working outlets. Generally, if you are prepared to take on some repair expenses prior to moving in to your new home, you can feel sufficiently protected by the “for informational purposes only” or “for health and safety issues only” inspection contingency.

Some buyers have taken things a bit further and have fully waived their inspection contingency in their offer. Unless you are very familiar with building construction, this is an extremely risky offer to make. Houses are staged to be sold. Many issues that will be apparent to a trained building inspector can be missed by a home buyer even if the house appears to be solid and well maintained. It is important to note that the Residential Property Condition Disclosure Form and seller representations in the contract cannot take the place of a buyer doing their own due diligence prior to closing on a purchase. Once you close on your purchase you do not have any recourse to go back to the seller for issues you discover post-closing unless you can prove that the sellers intentionally mislead you. A court is unlikely to be sympathetic to the buyer that could have discovered the problem in advance but waived their opportunity to do a building inspection.

As real estate attorneys representing buyers, the attorneys at RLG understand buyers need to do all they can to make their offer as attractive as possible in this challenging market. But we do want to be sure that our buyers fully understand the risks of the offer that they are making. On the flip side, as seller’s attorneys, we will continue to advise our sellers that a slightly lower offer with no contingencies is a stronger offer than the offer to pay a higher price but with more contingencies.

If you have real estate related questions we are happy to assist you. Please contact Amy Zabetakis or email us at