Waiving the appraisal contingency
The appraisal contingency is most important when you're financing your purchase. Because most lenders won't loan you your full sale price unless the home appraises at that number, waiving the appraisal contingency can mean you're on the hook for thousands of dollars if things don't go as planned.
For investors, appraisal contingencies are hit or miss. If you're paying in all cash, a too-low appraisal isn't going to hurt your deal. If your purchase hinges on a mortgage loan, though, you could go either way.
- If the property appraises too low, do you have the funds to make up the difference out of pocket?
- How confident are you in your ability to evaluate a home's value and make a right-sized bid?
- Is the market stable and consistent lately in your area?
If you're financing the property and are still considering waiving the appraisal contingency clause, you will also want to look at comparable sales to determine if the home is likely to appraise. A local real estate agent may be able to help you make this assessment.
Waiving the title contingency
This isn't really one you waive (or even consider waiving). Though title issues aren't too common (and most of them can be resolved before your closing date), that doesn't mean you're completely safe. If, in fact, a title issue does crop up -- like a lien against the home, for example -- you could find yourself out thousands, or worse yet, losing the property altogether.
The risk of title issues is even higher if you're buying a distressed home -- like one in foreclosure or a short sale. If one of these properties is on your radar, waiving the title contingency likely isn't the smartest move, even if it does get you the house.
Waiving the home sale contingency
The home sale contingency basically says you can back out of the deal if your existing home doesn't sell by X date. It's typically only used by existing homeowners looking to move up and buy a new property.
As an investor, you probably won't need to worry about this one unless you're planning to move from your current home into a unit on a new multifamily property you're buying. If that doesn't apply in your place, you're safe to waive it (and probably should).
Other contingencies you may want to waive
Those are the most common homebuying contingencies, but there are also clauses you can include (and waive), too. These include early move-in contingencies (lets you move in on X date regardless of when you close), homeowners association (HOA) contingencies (lets you out of the deal if you discover HOA policies you're not happy with), and rent-back contingencies (lets the seller lease the home back from you for a certain period of time until they find a new place).
Again, these contingencies don't apply as much to investors as they do traditional homebuyers. The one exception may be the HOA contingency. If you're buying a home to use as a short-term rental, then including this contingency may be smart, as many HOAs have rules against renting out properties on a short-term basis. (Cities and counties do, too, so make sure to look into local laws and regulations as well.)
The bottom line
Contingencies are there to protect you when you buy a home, but they also pose a problem -- especially in a bidding war. They might make your bid less attractive, or they could even lose you a property altogether, especially in a seller's market.
While waiving a contingency clause could certainly help in this case, it's important not to do so lightly. Talk to your real estate agent, lawyer, loan officer, and contractors about how you'd handle the consequences if something went awry. If you have a solid plan for how you'd handle the problem, then waiving the contingency could be a good move.
If you're unsure about your finances or you're not confident in your abilities to bounce back if something didn't go as planned, then you may want to keep those contingencies just to be safe. In the end, a lost property is better than one that puts you in the red.