In a housing market starved for inventory, buyers are stepping over one another to bid on desirable properties. But a high bid may not be enough â€” sellers are also seeking offers without mortgage contingencies.
Usually included in a sales contract, a mortgage contingency gives buyers the option of backing out if they canâ€™t obtain financing within a specified period. And if they do back out, they can take their down payment with them.
But the combination of a competitive market and a difficult lending climate has made sellers in New York less amenable to such conditions. They want noncontingent or all-cash offers.
â€œWhen you have a market thatâ€™s heating up,â€ said Marc Israel, the executive vice president of Kensington Vanguard National Land Services, a title insurer, â€œsellers feel emboldened to say to buyers, â€˜Iâ€™m not going to give you this clause because I donâ€™t want to take the risk that you canâ€™t get your mortgage.â€™Â â€
The stance makes perfect sense from a sellerâ€™s viewpoint. When the market is hot, added Mr. Israel, a continuing education instructor for real estate lawyers, â€œthe last thing sellers want to do is tie themselves up with a buyer for some extended period of time just to have the buyer cancel the contract.â€
For buyers, however, signing a contract without a mortgage contingency is risky. If their financing was delayed or denied, they could forfeit their down payment.
Given the typical 10 percent down payment in New York, â€œyouâ€™re talking about a very significant amount of money at risk,â€ Mr. Israel noted.
In such a competitive market, buyers who need financing may find themselves up against those able to pay in cash or put at least 50 percent down, said Peggy Aguayo, an executive vice president of Halstead Property. It is not uncommon for high bids to be passed up for slightly lower bids that are noncontingent or all cash.
â€œA typical buyer with 25 or 30 percent to put downâ€ Ms. Aguayo said, â€œif they donâ€™t waive that contingency, the seller will go with someone else.â€
The problem can be discouraging. Some of her buyers have decided to pull out of the market altogether until inventory loosens up.