Real estate brokerage company Redfin claims that 14.6% of successful offers submitted by its agents waived an inspection contingency in May. Additionally, the number of homebuyers who waived a finance contingency dropped to 11.7% during the same month.
Last year, the share of American homebuyers who waived either an inspection or finance contingency sat at 19.8% and 13.2%, respectively. So, this year’s decline suggests home shoppers now have more buying power than they did in 2018, according to Redfin.
“The inspection contingency allows the buyer to cancel the deal if they find an issue during the inspection period that they consider to be a deal-breaker,” Redfin writes. “A financing contingency allows the buyer to cancel their purchase agreement if their financing falls through, for example if the appraisal comes in below the purchase price or the buyer’s finances change before closing.”
As a form of protection for the buyer, both of these contingencies are included in the typical home purchase agreement. By waiving them, the buyer gives more control and assurance to the seller.
According to Redfin, May’s contingency decline may indicate that buyers are now more judicious in their offers than they were last year.
Redfin Chief Economist Daryl Fairweather said sellers are now more willing to give buyers what they want because they don’t have as much negotiating power as they did a year ago.
“Last year, sellers would often receive multiple offers and had their pick of the litter,” Fairweather said. “Now that they have less control of the market, sellers are taking on more of the risk from the buyer — like the risk that the buyer can’t sell her own home, or the risk that something unnerving is found during the inspection.”
Interestingly, Redfin revealed that the use of home-sale contingencies is now on the rise. According to their data, 8.4% of successful offers submitted by Redfin agents included a home-sale contingency in May.
This percentage is up from 4.4% a year earlier but slightly down from 8.5% in April, which was the highest level since the company began recording this data.
Redfin Agent Glenn Rickel said typically, a seller won’t even consider an offer with a home-sale contingency during the first one to two weeks on the market, but that’s all starting to change.
“If the buyer is not already under contract with the home they have to sell, they’re asking a big favor of the seller to take their home off the market for two months or more and hope that the buyer’s home sale goes through smoothly,” Rickel said. “Now that more homes are taking longer to sell, it’s become easier for a move-up buyer to find a home that has been on the market for a few weeks or a few months, which makes the seller a lot more likely to accept an offer with a home-sale contingency.”
The image below highlights the share of Redfin’s sale contingencies: