By Dave Twombly
Earlier this week I had clients make an offer on a condo in West Somerville. It was a lovely place that was move in ready yet on a well traveled street. Knowing the market is hot our initial offer was about $30,000 over the asking price. As these are strong buyers, able to put 25% down on a property I felt confident in our offer. At least, I hoped, we were in the conversation. I was wrong.
The listing agent, one of the better ones I’ve worked with, called back that evening to say we did not get the place. There were 7 offers (which feels light in this market) and we weren’t even in the upper half of offers. I was fairly shocked to learn this but then the listing agent told me that it wasn’t about the money. The winning bid, while higher than ours, also didn’t include any contingencies. No home inspection. No mortgage contingency. “It’s tough to compete with cash offers” I said. “Oh it wasn’t a cash offer, they just waived their mortgage contingency”, she replied. I almost dropped the phone.
An offer to purchase real estate is designed to protect the buyer. The home inspection contingency allows the buyer to walk away with their initial deposit ($1,000) should there be any defects with the property. The listing agent told me that a lot of buyers are doing pre-inspections, meaning they are getting the property inspected before making their offer. This allows them to remove the inspection contingency from their offer making them more competitive. A typical home inspection will cost between $600 – $1,000. That’s a lot of money to gamble with. If you get a pre-inspection, make an offer and don’t get the property you just blew $600-$1,000. Are you willing to do that multiple times? But it gets worse.
A mortgage contingency allows the buyer to walk away with their deposit in the case that they don’t get their mortgage. This deposit is typically 5% of the purchase price. Quick math: $500,000 property, 5% would be $25,000. Waiving this contingency means that you are taking a $25,000 gamble! Imagine if you waived the mortgage contingency to get the house of your dreams, put down $25,000 for your deposit when you signed the Purchase and Sale Agreement, applied for your mortgage and something happened? Maybe you lost your job. Or your spouse lost his. Or you had a major medical expense and couldn’t go forward with the purchase. Or one of a host of any other things that could derail a borrower from getting a mortgage happened. Guess what, you just lost $25,000.
Does this sound like a smart decision to make? Do you want to sacrifice your rights in order to take on the biggest financial burden of your life? The market in the greater Cambridge area is very difficult for buyers right now. But this doesn’t mean you have to make foolish decisions to buy a property. Don’t participate in the madness and desperation. Don’t give away your rights. Sooner or later the market will calm down and the madness will go away. Let’s not make sacrificing our rights the new normal.