If you’re a condo buyer you may want to read this
The downtown Boston condo for sale market is roaring into summer, and two things are clear: It’s very much a seller’s market for Boston condos for sale and , and a majority of buyers are submitting non-contingent offers on properties.
What this means is that in a competitive situation, many buyers will waive all sale conditions—or “contingencies”—in order to send the message that they are completely confident they’ll complete the purchase. In other words, these Boston condo buyers will assume the risk of waiving inspection, appraisal, and loan contingencies to make their offer as clean as possible. If the buyer wants to cancel the contract and has no contingencies, the sellers can make a case for retaining the deposit sitting in escrow.
I’ve represented many Beacon Hill condo buyer and seller clients this year, and each month a larger portion of offers in these scenarios had no contingencies. My colleagues are also routinely reporting this type of activity.
I’m not advocating you do this, Boston condo buyers who go non-contingent typically have very solid down payments—often more than 20%—and have been fully preapproved for a loan, with the lender only needing to approve property details once in contract. Additionally, the buyers have strong cash reserves that they can use to make up for an appraisal shortfall or handle unexpected repair or maintenance items during the course of their ownership.
If you’re a buyer considering taking the non-contingent risk to better compete, definitely consult your lender for his or her opinion. The lender is really the most appropriate party to advise you about this (not your Realtor). If you can’t go non-contingent, you’ll need to scout out less competitive offer situations—or wait until the market cools down a bit.
The downtown Boston condo market has come roaring back after the initial Covid slowdown in 2020. We are heading into a robust Summer in 2021, and it seems like Boston 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 single-family homes and 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.
Sometimes I’m not so sure.
When you make an offer on a property, you typically include an earnest money deposit usually between 5 -20 % that is placed into an 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 renege on the contract. Given downtown Boston condo 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.
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