Home Buying in 20815>Question Details

Ben Jones, Home Buyer in 20815

Our agent talked us out of the financial contingency. We are very strong buyers (everyone agrees on this)

Asked by Ben Jones, 20815 Fri Jul 4, 2008

and did not technically need it, but it now looks like it would have been a good contingency to have. Was this bad advice from them?

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Where do the buyers who post on here find these agents?!? They give the rest of us a bad name! A Realtor should never be talking their clients out of something that will protect them. If they did it to make your offer competitive in a multiple bid situation, then you should have at least been told the ramifications of deleting the contingency.

Since it's already too late, do you have any other contingencies you can use to get out of the contract? Is there a homeowners or condo association? If so, that might be your best option. In Maryland, from the receipt of the HOA/condo documents you have 5-7 days to void the contract no questions asked.
5 votes Thank Flag Link Fri Jul 4, 2008
Hi Ben,

I guess I would disagree with most posters here. If you are already fully approved for your loan, have the cash and are in solid financial condition, then a financing contingency doesn't give you much since you *will* be approved for the loan (or are already approved for the loan). For solid buyers like you, I've written many contracts with or without a financing contingency. If a buyer hasn't made full loan application and been fully approved, then this contingency should always be there.

However, in this market, having an *appraisal* contingency gives you the real protection you need. This contingency allows you to renegotiate price if your appraiser comes up with a lower value than your purchase price.

Good luck.
2 votes Thank Flag Link Fri Jul 4, 2008
Lending guidelines have become much more restrictive in the past few months. Despite excellent credit, sufficient income for the purchase, and other necessary qualifications, there is still no guarantee that one will absolutely 100% qualify. Stuff happens. Unless you are paying all cash, I'd advise a client to consider keeping the financing contingency in a contract. As long as the sellers can see you are well qualified, they should not be turned off by the presence of this contingency.

If your's is one of several offers being presented to the seller (multiple offers), then maybe it is worth considering the removal of the financing contingency in order to strengthen your position. And there are many other scenarios as well. Perhaps you come in with a very low offer, then maybe it makes sense to remove the financing and other contingencies in order to counteract the low offer. So there is no perfect answer to this question.
1 vote Thank Flag Link Thu Feb 12, 2009
The only time my buyers do not need a financing (Loan) contingency is when they are making an ALL CASH offer AND there are other offers which require my buyer to differentiate he/she from the other buyers.

Short of that, I always recommend a loan contingency and will not recommend removing that until the lender gives a final GO ahead.

Even with all Cash Buyer, we have to make sure he/she has the reserve should there be emergency where they won't have enough cash to purchase.

Sylvia
1 vote Thank Flag Link Fri Jul 4, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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It is always bad advice, even if you are a herculean of a buyer, not to put in a financial contingency.

My opinion on the matter is that with the country going through a credit crunch, a possible looming recession, the fall of the sub-prime mortgage and a record number of 2nd closing day credit worthiness reviews by underwriters, it’s never a good idea not to have a financial contingency.

Granted, I am sure someone could argue that yes, a time does exist that a financial contingency is just ridiculous, especially if you are trying to be very competitive for a particular home however, I personally would much rather err on the side of caution and reason than simply putting my client at risk of not being able to back out if necessary.

In my humble opinion, not having a financial contingency seems like a rookies mistake.
1 vote Thank Flag Link Fri Jul 4, 2008
In most cases, I would say this was bad advice. The contingencies are the only thing that let you out of the contract without losing your earnest money. That said, if you were in competition with another offer, this could have made sense. If you're fully approved, and had no true need for a financing contingency and there was another offer on the table, this changes things. From a seller's perspective, an offer with the least contingencies is the most appealing because it leaves the smallest chance of the contract falling through and the most chance for the Seller to sell their home...
0 votes Thank Flag Link Wed Jun 1, 2011
Risk vs reward. I don't know what the potential reward was, but you're certainly finding out what the risk is.

Just because it didn't work out doesn't make it bad advice. And without having witnessed the dynamic, I think we'll never know.
0 votes Thank Flag Link Thu Dec 10, 2009
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0 votes Thank Flag Link Thu Dec 10, 2009
Ben,

I wonder what changed for you between not "technically" needing the contingency, and now when it looks like it would have been a good contingency to have? Did your loan approval not come through, or your circumstances change in some way? Your agent should not be talking you out of, or into! anything. You should be provided with all the info you need to make a decision, and be able to ask many "what if" questions. If you were competing with multiple offers, then you might have wanted to take a calculated risk that the absence of a financing contingency would make your offer more attractive to the seller. As others have pointed out, there are other considerations also- appraisal contingency?, settlement time-- without knowing the rest of the details, I would say it is difficult to offer an opinion. In any case, your agent should advise you of the pros and cons of every element of the offer, and make it clear to you that the final decision is yours to make. In the current market, I would say that generally an appraisal and financing and home inspection contingency should be an expectation for any seller, but there are always exceptions.

Best of luck,

Sheila
0 votes Thank Flag Link Fri Oct 17, 2008
First, you should always protect yourself with contingencies. Although contingencies weaken your offer, it's a balance between making a strong offer and protecting yourself. And you've got to protect yourself first.

Having said that, if you'd told the agent: "Look, we really want this house. It's our dream house. We want to go in there strong." Then removing the financial contingency would have been something to consider. I'm concerned--and I think many of the others commenting here may be--with your statement that "our agent talked us out of the financial contingency." Presenting the facts--for instance, that your chances of getting a ratified agreement were stronger without the contingency, or that your current home will easily and quickly sell for what you need--is fine. But then it should be up to you to decide...to weigh the pros and cons of the various option.

Reexamine the points that your agent made when discussing the issue with you. It's possible that they were relevant and persuasive. A lot of buyers get nervous after making an offer; that may be part of what you're going through. And certainly raise those issues with your agent.

Hope that helps.
0 votes Thank Flag Link Fri Jul 4, 2008
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
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I am a little lost with what you are asking was there another post somewhere?
http://www.lynn911.com
0 votes Thank Flag Link Fri Jul 4, 2008
Unless you are in a position to pay cash it is best to always have a financing contingency especially in toaday's market.

As a buyer you might have sterling credit and a good downpayment. which is phase one of the entire loan process.

What has become a very critical element is the appraisal. Many times a lender will asked for an appraisal review or a second appraisal or even reduce the value as stated in the appraisal especially if they believe your area is in a very soft or declining market. Funds to close the loan are usally from sources that are out of state and they are often clueless about your specific neighborhood and it's market conditions.

A lender usually gives a written "conditional approval" which means they will grant the loan as long as you provide them with requested information and it is satisfactory to them.

Word to the wise, always leave contingency items in tact, even in an "as it" purchase.

Hope all goes well with your purchase.

All the best!
0 votes Thank Flag Link Fri Jul 4, 2008
If you are concerned about it, then...YES. Opinion, but clearly your needs weren't met.
Web Reference: http://optionsrealty.com
0 votes Thank Flag Link Fri Jul 4, 2008
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