The Boston real estate market has come roaring back after the initial Covid slowdown in 2020. We are heading into a robust Spring, and it seems like Boston downtown condo buyers and sellers are making up for last year’s lost time.
That’s led to very competitive offer situations and high sale prices, particularly for Beacon Hill and Back Bay condos in smaller buildings. Most multiple-offer situations end up with a handful of buyers waiving all contingencies (e.g., conditions of the sale) in order to make their offer as attractive as possible to the seller.
But do Boston condo buyers realize what’s at stake when they waive all contingencies? Sometimes I’m not so sure.
When you make an offer on a property, you typically include an earnest money deposit that you place into the escrow account upon offer acceptance. That money sits in the escrow account and is related to what’s known as the “liquidated damages” clause in the contract. In other words, if a buyer backs out of the sale without using one of the contingencies as the reason, the sellers are within their rights to retain that deposit money for damages incurred.
That deposit is at risk if a buyer waives the major contingencies (e.g., inspections, appraisal, loan) and a complication arises in one of those areas that force the buyer to reneg on the contract. Given downtown Boston’s real estate prices, that amount of deposit money is significant.
I discuss all the ins and outs with my clients about contingencies and whether it’s possible or desirable to waive them in a competitive situation. There are certainly many instances where buyers should not be waiving major conditions. This decision is very specific to one’s financial situation, and shouldn’t be taken lightly. Make sure you discuss the larger perspective with your agent and lender before you risk your deposit money.
There are all sorts of contingencies that can be put on an offer to buy downtown Boston real estate. The two most common are inspection contingencies and contingent on financing.
Buyers can also make an offer contingent on the sale of their own home. It happens all the time but those contingencies get complicated. Usually offers that are contingent on the sale of Boston real estate can be bumped by non-contingent offers from other buyers.
Here are a few things that can and do go wrong:
- A non-contingent offer comes along and the seller accepts it and the contingent buyer’s offer gets canceled because they do not get an offer on their home fast enough.
- The contingent offer isn’t accepted because there are several other offers that are non-contingent.
- The seller asks that the contingency is removed within 48 hours because they can and they got cold feet and you all agreed to the 48 hours.
- The buyer gets an offer on their property but it is a contingent offer, which means it can not be used to remove the sale contingency.
- The buyer gets an offer but the financing on that offer falls through and the offerer is unable to perform.
Sometimes there is a chain of 3 or more home sales that depend upon that first home sale in the chain closing.
I have been through chains of sales with multiple contingencies and they often work out. I have learned to go into these situations believing that everything will work out and I encourage my clients to do the same.
In a strong seller’s market is especially important for home sellers to have a plan and know where they are going to live after their home is sold.