Waiving the Financing Contingency

In the last couple of years we have seen a number of strategies to strengthen offers made on homes in order to win out in multiple-offer situations. Probably the most common is to do a “pre-inspection” of the property with a building inspector, then waive the Inspection contingency. This assures the Seller you will not just walk away after your inspection if you change your mind. There is now even a check box on the second page of the NWMLS Form 35 Inspection Contingency for the Buyer to acknowledge they are waiving the right to an inspection Contingency.

Recently in multiple-offer situations it’s become common to also waive the financing contingency to make the offer even stronger. This is often done even though the Buyer intends to get financing to purchase the home. While this has some value to the Seller, it also carries some risk for the Buyer. Perhaps more importantly, many agents are just removing the addendum without any further modifications or disclosures to the Seller and are potentially inadvertently putting their Buyers into fraudulent contracts.

In the fine print of the NWMLS Purchase and Sale Agreement it states, “Buyer represents that Buyer has sufficient funds to close this sale in accordance with this Agreement and is not relying on any contingent source of funds or gifts, except to the extent otherwise specified in this agreement.” So by just removing the 22A Financing Addendum, the Buyer is saying they do not need to get a loan, which is untrue.

The proper way to approach a financing waiver is to disclose that the Buyer is getting a loan and where the funds are coming from, while at the same time acknowledging that this is not a condition of the contract. In other words, if the Buyer is unable to obtain a loan they are forfeiting the right to use that as a reason to have their earnest money refunded.

Coldwell Banker Bain has generated a great form for this called the 22PNF, which is available to any member of the NWMLS under CB Bain’s company forms. However to date, I have never seen any other agents except Coldwell Banker Bain agents take the time to use this form or clarify this issue in their offer.

The wording also takes care of the need for the Buyer to have access to the property by their lenders appraiser, if needed. This wording would have been in the 22A Financing Addendum, if they had not removed it.

Another strategy that is common is to keep the 22A Financing Addendum, cross out everything but the bottom part of the page where it has the Appraisal Condition. The intent here is to not have the offer be conditioned on getting the loan, but assure the Buyer that he will not have to move forward and can get their earnest money refunded if the property does not appraise for at least the sales price. This may give them some security, especially if the price escalates very high during the multiple-offer process.

This situation is another example of why it is so important to have a knowledgeable Realtor on your side. They can extremely valuable in helping you prepare a compelling, yet legal and proper Purchase and Sale Agreement.

The information above is not intended to be legal advice and should not be construed as such. Please consult a licensed attorney regarding any legal matters.