In today’s super competitive NYC real estate market, perspective buyers have to find creative ways to get a step ahead of the competition to get the properties they really want. One idea that often comes up is waiving the “financing contingency.” So, what does this mean, what are the risks involved, and when might it be a fine idea? Top NYC real estate attorney Sandy Schwartz, Partner at Schwartz, Levine and Kaplan, PLLC, is here to share his insights.
What is a financing contingency?
A financing contingency is a contractual term that allows a buyer to attempt and procure financing for up to a specified dollar amount for a limited period of time during a real estate transaction. Generally speaking, if the buyer (a) is declined for financing within the contingency period or (b) does not receive the financing during the contingency period or (c) receives a mortgage commitment for less than the amount the contract allows he/she to seek, the buyer is afforded an opportunity to terminate the contract and demand a full refund of the contract deposit paid upon the signing of the contract.
Under what circumstances might a buyer waive their financing contingency?
In a competitive market, buyers often choose to waive their financing contingency to make their offer more attractive to sellers. However, I would not suggest a buyer do so unless they have money in the bank to complete the closing in the event their anticipated financing does not come through.
How often do you see buyers waive their financing contingency?
50/50
What are the risks involved in purchasing without a financing contingency?
In the event you proceed to contract without a financing contingency and require financing to complete your transaction, in the event you do not secure your financing within a timely manner, your contract deposit could be at risk as the seller may allege a default under the contract if you do not close within the contractually mandated time period.
Anything else purchasers should know regarding financing contingencies?
Loaded question! I would suggest all buyers speak to their counsel about what the financing contingency in his/her contract says. Although most language is similar, certain contracts have different requirements so as to ensure that the buyer has exhibited “good faith” in applying for their loan and as such, gaining the benefit and protection of the financing contingency.
Photo by Ken Teegardin via flickr.