All-cash offers and contingencies: what you need to know

As Elvis Presley infamously sang, “Home is where the heart is.”

The line often resonates deeply for both home buyers and sellers who are on the cusp of taking the next step in their homeowner journey. But, did you know even after an offer has been made and accepted, a contingency can extinguish the entire deal at the last minute? That’s certainly heartbreaking for all parties involved.

In real estate, a contingency, also known as a “walk away” clause, refers to the conditions that must be met in order for the purchase or sale of a home to become legal and binding. For instance, in NAR’s monthly Realtors® Confidence Index report, “issues related to obtaining financing” continually leads the pack as the primary reason for the delay or termination of a real estate contract

When buying a house with cash, however, there’s no financing contingency baked into the contract – eliminating the risk and heartache of the deal falling through.

So, what common contingencies should you know about? In what ways can they protect you? In what ways can they increase the risk of a deal falling through? And how do cash offers impact real estate contingencies? Here’s what you need to know.

Financing contingency

A financing contingency states that the home sale is dependent on the buyer securing the expected mortgage. No financing approval, no contract.

Closing a loan traditionally is a lengthy process, taking an average of 47 days to complete, according to Ellie Mae, the software company that processes 35% of U.S. mortgage applications. During this window, a deal can fall through due to financing at any time. Buyers and sellers alike can think the sale is a done deal, only to be notified of a financing problem on day 46 under contract. When instances like these occur, the financing contingency allows buyers to retract their offer without facing any penalties.

No one wins when the buyer's financing falls through.

For sellers, the challenge of the financing contingency is having to wait to find out if the deal will fall through, in which case, the seller will be forced to start from scratch and find a new buyer all over again; placing their home back on the market and fielding added expenses that arise from the failed sale. Often, the home also has to be listed at a lower price due to a stigma placed on homes that fall out of contract, regardless of the reason.

Buyers aren't immune to wasted money and time either, facing their own frustrations of losing out on their dream home. And real estate agents can't get paid until their clients make it all the way through the sales process. Using an all-cash offer, however, there’s no financing contingency on the table. That's because a cash offer means the buyer has full proof of funds ready and loaded when they make the offer. Buyers who are Cash Approved™ -- not just "pre-qualified" or "pre-approved" -- pose no risk of falling out of a deal due to a financing contingency.

Home sale contingency

When a buyer’s offer is contingent on successfully selling their existing home first, that means the offer has a home sale contingency. Like the financing contingency, a home sale stipulation can stall the entire purchase process from moving forward.

This type of contingency can be found in both financed and cash offers.

In a hot market, home sale contingencies may not be as common since buyers don’t want to risk making their offer less attractive and have fewer concerns about being able to sell their current house.

However, if you're a buyer who needs to include a home sale contingency, making a cash offer -- by getting Cash Approved™ for example -- is often a good way to go because cash gives you more negotiating power than a traditional financed offer.

Appraisal contingency

Another condition that can sour a deal is the appraisal contingency. After a seller accepts an offer, a traditional mortgage lender will require a property appraisal to ensure the asking price coincides with the market value of the home.

From the condition of the property to renovations to tax records, if an appraiser’s assessment determines the market valuation is below the asking price, the lender can deny a buyer’s loan application after the offer is already made. If the mortgage lender agrees to move forward with financing in this particular scenario, the buyer would be accountable for paying the difference out-of-pocket.

Most buyers don’t have the liquidity to front the difference, and the appraisal contingency allows them to terminate their offer without forfeiting their earnest money.

Similar to the no-financing contingency, appraisal contingencies can be removed in an all-cash offer.

But you don't need to be a billionaire with deep pockets to make a cash offer on a reasonable home. At Accept.inc, we want the mortgage process to work for everyday people -- what a radical concept! To speed up the closing process, we perform a value check on a home at the beginning of the home buying process – before an offer is made – rather than in the final hour like a traditional mortgage. That means no nasty surprises to torpedo the deal in the final hour.

All-cash offers and contingencies

In today’s supply-starved real estate market, homebuyers are seeking ways to make their offer stand out from the crowd. Bidding way above the asking price isn't the only way to do that -- fewer contingencies is another reason why sellers prefer a cash offer.

Cash buyers represented 36% of home sales in 2020, according to CNBC. So, how can one go up against these Goliaths with easy access to millions of dollars in cash? The secret lies in aligning yourself with a lender who will let you negotiate with the power of cash, but with the ability to pay the money back over time like a normal mortgage.

Interested in making a cash offer on your next house, with no financing contingencies and no additional costs, increasing your likelihood of making a winning offer by 4X? Learn how to get Cash Approved™ today!