Should we Waive the Contingencies on a Home purchase?

Should we waive the contingencies on a home purchase? It's not unusual in a seller's market or in a multiple offer situation for buyers to consider waiving contingencies. The typical contingencies on a home purchase are inspections, appraisal and financing.  In Texas our promulgated contract allows the buyer a negotiated option period in lieu of an inspection contingency.  Once agreed upon, the buyer has the option of terminating the contract for any reason during his option period.  Our contract also provides protection for the buyer in case the property does not appraise or the financing is not approved.  I would not recommend waiving any contingencies, but instead offer the shortest time period possible.

The appraisal contingency allows the buyer an option to terminate the contract if the appraisal comes in below the contract price and an agreement cannot be reached with the seller.  However, this is the one contingency that could be waived, because  under most circumstances, it should come with the least surprise.  If you are working with an experienced Realtor who knows the market and did a good comparable analysis of similar homes sold within the last six months, you both should pretty much know if the house is going to appraise. And if it doesn't, then there would be solid evidence to dispute the appraisal.   However, I would not waive  this if there are doubts about the property appraising unless you have a lot of extra cash to play with.

On the other hand, waiving the option period in a contract is a tough decision that should not be made lightly.  Sometimes even beautiful houses that look well maintained can still come with expensive hidden defects.  Also, many times in the excitement of finding a  home we love, we miss things that are important, such as commuting time, a nearby cell tower  or other factors.   The option period gives you a chance to do your due diligence.   Again, a better choice than waiving the option period is to do a short time frame.

Waiving financing is also very risky. The financing contingency gives the buyer an agreed upon length of time to secure financing to complete the purchase. If financing cannot be obtained, the buyer can terminate the contract and receive his earnest money back. However, if the buyer waives the financing contingency and the lender doesn't approve the loan, the buyer is still obligated to perform under the contract.  Although realistically most sellers will not sue you for specific performance, but most likely you will end losing your earnest money.

Keep in mind there are many reasons financing can fail. It can even fail after obtaining initial underwriting approval because of a FICO score change, a debt to income change, a change to the final automated underwriting findings or even mortgage insurance company denial.  Ultimately, each buyer has to decide what risk level he wants to take on by waiving contingencies.