This week’s Q&A column is written by Sallie Seiy of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Sallie at 703-798-4666 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: What is all this talk about waiving contingencies? It seems unfair.
Answer: If you’re a buyer now, or will be in the near future, you may be asking yourself, “do I really have to risk so much to win a home?” I challenge you instead think of it this way, “what strategies can I implement to reduce risk and position myself to win a home?” In our market of multiple offers, escalated costs, and the practice of waiving “everything,” it can feel like you, the buyer, are taking all the risk. However, the risk to you can shrink if you come in with a good, solid strategy.
Here are two contingencies that you can discuss with your Realtor about waiving and how best to flip the script on their risks.
Home Inspection Contingency
Writing an offer on a home is an exciting time, but the responsibilities of homeownership are real. As a potential new homeowner, it’s always important to know what you’re getting into when purchasing a new, unfamiliar home. There are ways to check on the health of the home on a regular tour, but an inspection will peel back certain layers that you can’t see or would otherwise miss.
Inspectors are the professionals and I liken them to the medical field. Home inspectors are like your generalist. They have mass amounts of knowledge about homes, can point out any red flags, and connect you to specialists to further diagnose any potential issues.
However, the market can be very competitive, so you’ll want to put your best foot forward on your offer. One way could be waiving a home inspection. Yet, that can feel uneasy to a lot of buyers. To eliminate this fear of the unknown, you can request to do a pre-offer inspection. This means having a home inspector out to the property prior to submitting your offer. A pre-offer inspection is usually no more than an hour and is performed between the time the home is active until the offer deadline, if there is one. While you do pay for this inspection prior to even writing your offer, like an ante in a poker game, it can save you so much money and headache down the road.
Your inspector won’t be able to check every window or every electrical socket. This pre-offer inspection is intended to focus on the high value items in a property: HVAC system, roof, electrical and structural, to name a few. Knowing the health of the most expensive parts of a home can help you make a more informed and confident decision about moving forward (or bailing) on your offer.
First off, we should define what an appraisal is in a real estate transaction. An appraisal is an unbiased, third-party opinion of value for a particular property and is performed by a licensed professional. An appraisal is always needed whenever a mortgage is involved in the transaction.
If you have a lender, you’ll have an appraisal. This appraised value is important because the lender is only going to approve a loan based on the lowest value between the contract and the appraised values. If the appraisal is lower than your contract price, then a contingency would protect you as a buyer and allow you to negotiate with the seller on how to cover the difference between the two values. If you waive this contingency, you, the buyer, would have to cover the difference. The higher the escalation, the higher the amount you may need to cover. It’s not a choice to take lightly.
Certainly, this is a discussion to have both with your Realtor and your lender. When figuring out what to offer for the home, your Realtor will do many things to assist you with this decision and one way is to run a Comparative Market Analysis (CMA). This CMA evaluates the market activity for similar properties in the same area, focusing on properties that have sold within the last 3-6 months. Relying on this data as well as current market conditions will assist you in deciding if waiving the appraisal contingency is right for you.
You should also speak with your lender and discuss your financial pros and cons. This lender should be someone that is working in the local market because they know the current market conditions and can speak about appraisals from real-time experience. By getting the full picture of the property-specific market and running pricing scenarios with your lender, you can make a more informed decision about whether waiving the appraisal contingency is right for you.
The finest strategies are usually those that were planned. You should be having these discussions with your Realtor prior to entering the market so you are prepared, ready, willing, and able to make the best (and quickest) decisions.
If you are looking to start your home search, please give me a call!
As a fifth generation Realtor and the granddaughter of an architect and builder, Sallie has deep roots in real estate. She is passionate for the charm, history, and architecture of Alexandria and its surrounding communities. If you would like more information on selling or buying in today’s complex market, contact Sallie today at 703-798-4666 or visit her website SallieSeiy.com.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria
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