Rejection hurts in any form, but when Charlotte Nugent and her husband offered well over the asking price for several homes in the D.C. region and still lost out, they were admittedly frustrated.

Like many of today’s buyers in the excruciatingly competitive housing market, the couple sometimes opted to waive contingencies that protect buyers in the hope of getting an offer accepted. A real estate contract contingency refers to something that must be completed before the contract can move forward, such as a home inspection or an appraisal.

“We made four offers on houses, all significantly above the list price, but some of them sold for $100,000 more than the asking price,” Nugent says. “In some cases, we waived the home inspection because we were able to do a pre-inspection before we made an offer. In other cases, we waived the appraisal contingency.”

Nugent says she relied on the advice of their real estate agent, Brett West with McEnearney Associates in Washington, to help them determine which contingencies to waive depending on the property.

“Every offer we’ve presented over the past several months has been made without contingencies,” West says. “Whenever we could, we would do a pre-offer home inspection. We would also make sure the buyers were completely confident of their financing and had access to extra cash if it was needed.”

Nugent and her husband were the one exception among West’s clients.

“We always kept at least one contingency so we would have an out if we needed it,” says Nugent, 36, who works for the D.C. Office of the State Superintendent of Education.

The couple expanded their geographical boundaries and lowered their price range from $700,000 to $600,000 and under so they would have more room in their budget to pay above the asking price, Nugent says. Their offer on a townhouse in the Arts District of Hyattsville, Md., which they made with home inspection, financing and appraisal contingencies, was accepted.

However, the property was sold “as-is,” which means the sellers would not negotiate for repairs even after a home inspection. The townhouse had been on the market without an offer, Nugent says.

“What may feel necessary today for some buyers can potentially be damaging for them,” says Nick Bailey, chief customer officer for Re/Max real estate in Littleton, Colo. “Buyers need hyperlocal professional help because the market is moving so fast. Recently we had a property receive 86 offers, but 77 of those offers were for less than the asking price. That tells me that 77 of those buyers had a not-so-great agent who didn’t understand the market.”

Buyers who waive contingencies and cannot meet the contract obligations can lose their deposit.

“In markets like Boston or D.C., where the prices are so high, that means deposits are high, too,” says Dana Bull, a real estate agent with Sagan Harborside Sotheby’s International Realty in Marblehead, Mass. “That really increases the financial risk of waiving contingencies.”

Skipping the home inspection

Buyer’s agents are reluctant to recommend that their clients waive all contingencies, but they also acknowledge that sellers may reject offers that include them.

“I never recommend buying a home without a home inspection,” says Antonia Ketabchi, a real estate agent with Redfin in Rockville, Md. “The best option now is to pay for a pre-inspection before making an offer. Unfortunately, this can get expensive for buyers who end up making five or 10 offers before they get a house, but it’s worth it to avoid buying a house with problems.”

A 45-to-60-minute pre-offer inspection, sometimes referred to as a “walk-and-talk,” costs about $350, compared with approximately $600 for a comprehensive three-hour home inspection with a radon test, West says.

“Pre-offer inspections are more important than ever because some sellers are signing a disclaimer that says they have no knowledge of their home’s defects rather than disclose them,” West says.

In addition, many sellers today insist on an “as-is” sale so they can avoid the hassle and expense of making repairs, West says.

“An abridged, pre-offer inspection includes a look at the structure of the house, the plumbing, the electricity and the age of the appliances, but buyers won’t get a written report or photos,” Ketabchi says. “We try to book an inspector to come with the buyers when they make an appointment to see the property as soon as possible.”

Some of Ketabchi’s clients have as many as two or three pre-offer inspections in one weekend.

“We rarely see any home inspections after an offer is made,” Ketabchi says. “The competition is so fierce right now that even ‘information only’ inspections that allow you to walk away from an offer but not to negotiate are uncommon.”

Protocols around home inspections vary by market. For example, in the Boston area, few buyers schedule a pre-offer home inspection, says Matt Dolan, a real estate agent with Sagan Harborside Sotheby’s International Realty in Marblehead.

“Typically, a house comes on the market on a Wednesday or a Thursday, but there’s no time for an inspection, and many homeowners don’t want to be displaced,” Dolan says. “If you can arrange a pre-offer inspection, that signals a higher certainty of expectation that you’ll get to the closing table.”

An information-only home inspection, in which the buyers have an inspection but waive the right to request repairs from sellers, is more common in Massachusetts than a pre-offer inspection, Bull says.

“You can write into the contract that you won’t try to negotiate on the home inspection results or that you would only ask for repairs that exceed a certain amount of money,” Bull says. “The intent is to give sellers something but not to waive entirely the ability to walk away from the contract.”

Cody O’Loughlin, a 30-year-old freelance photographer and his wife, a 29-year-old tech company recruiter, have been searching for a home in the $525,000 to $625,000 range on the North Shore near Boston for 18 months. They moved from their Boston apartment to a larger rental in Manchester-by-the-Sea while they continue to look.

“We’ve lost out on about nine offers and so far, we’ve kept all our contingencies in the offers,” O’Loughlin says. “The homes we’re looking at in this area were built in 1880 to 1930, so that usually means there are problems. In most cases, the sellers have lived there for 30 years or more, so waiving an inspection is just too scary for a house like that.”

In one case, O’Loughlin opted to waive the home inspection because the owner was a real estate agent who had fixed up the property for sale and provided a professional home inspection report.

In Denver, some sellers pay for a presale home inspection report that they share with buyers, Bailey says.

For Trevan Haskell, a 27-year-old software engineer in Denver and his wife, a 28-year-old optometrist, waiving a home inspection seems too dangerous.

“We’ve lost out on five offers so far and each time we included a home inspection contingency,” Haskell says. “We wouldn’t mind having a pre-inspection, but it costs a lot every time, and we can’t always arrange one. We’re thinking that next time we’ll waive the right to ask for repairs.”

Preparing for appraisal gap

Buyers sometimes waive the option to make the contract contingent on their obtaining financing and that the appraised value matches or exceeds their loan amount.

“Lenders require an appraisal, so when buyers waive that contingency, it just means that they promise to pay the difference if the appraisal is lower than their offer,” Bailey says. “If they can’t pay the cash, they can lose their earnest money deposit. Sometimes the buyers will write in a specific amount that they will pay to make up the gap, such as up to $10,000.”

Haskell and his wife, who have been looking in the $550,000 to $650,000 range in the Denver area for several months, waived the appraisal contingency on their offers.

“We did an inventory of our cash to see how much we could keep in reserve in case a place didn’t appraise high enough, but we were also betting the property would appraise,” Haskell says.

West says that buyers must be prepared in case of an appraisal gap, but that low appraisals are rare in the current market.

“The last time a property appraised below the offer on one of my transactions was in December 2019,” West says.

Waiving the appraisal contingency can be risky because so many buyers now offer as much as $100,000 more than the list price of a home, Ketabchi says. She compares recent sales and pending sales, which are under contract but have yet to close, to see how they compare to a home on the market. Waiving the financing contingency is less risky, Ketabchi says, as long as your lender fully underwrites and approves your loan.

'Evaluate your risk'

To lower the financial risk of waiving contingencies, real estate agents suggest sticking to your budget, gathering cash and having a home inspection at some point even if it’s after the sale. The main risk for buyers is the loss of their earnest money deposit.

While 70 percent of contracts were fulfilled on time in March, according to a Realtors Confidence Index survey by the National Association of Realtors, 24 percent were delayed and 6 percent were terminated.

Among those that were terminated, 12 percent had appraisal issues, 8 percent had issues related to obtaining financing, and 8 percent had home inspection or environmental study issues.

“To protect yourself in the case of an appraisal gap, you can reserve some of your down-payment funds in case you need cash,” Bailey says. “You may want to think about making a down payment of 10 percent instead of 20 percent to keep cash back for an appraisal gap or for repairs that sellers won’t make.”

Ketabchi says she tells every buyer there’s no guarantee that an appraisal will be high enough, so they need to be prepared with as much as $100,000 in cash in some cases.

“If there are issues with financing or an appraisal, the sellers have an incentive to try to work something out with the buyers as quickly as they can,” West says. “They can’t market or sell the property to another buyer while the issue is in dispute, so they may want to release the buyer from a contract if something happens to them and they lose their financing.”

Even if a transaction goes through, buyers could face an unpleasant outcome if they skip the home inspection, says Christian Adams, co-founder of Repair Pricer, a company that provides home-repair cost estimates for home-inspection items to consumers.

“Getting a home inspection for information only can help you find things that could be hazardous if left untreated,” Adams says. “Things like missing or damaged caulk on the exterior are easy to fix, but a new buyer might not notice them. If this isn’t addressed, you could end up with moisture damage and mold.”

The top five items found on home-inspection reports reviewed by Repair Pricer include loose or missing outlet covers, cosmetic cracks in walls, missing smoke alarms, signs of moisture, and missing GFCI (ground-fault circuit interrupter) protection on outlets. While those are relatively inexpensive to fix, they could be safety hazards, Adams says. Other issues could be more expensive to address.

“It doesn’t matter when you do it, but it’s vital to have a home inspection and compare the information you get with the seller’s disclosure about the condition of the property,” Adams says. “A full inspection gives you the information you need to budget for repairs and to maintain your home.”

In addition to or instead of waiving contingencies, some buyers today offer to pay the seller’s closing costs, West says. Suggesting a delayed closing or for the sellers to live in their home rent-free for as long as 60 days after the closing can also make an offer more attractive, he says.

“Every buyer should be aware of their financial picture, not just what they qualify for,” Bailey says. “You can evaluate your risk of waiving contingencies depending on your finances. Maybe you’re okay if you need to spend $20,000 on a new roof, but if you waive your inspections and don’t have much cash, it could be much more dangerous.”

An experienced team including your lender and real estate agent can help you navigate the wild housing market.