Sellers of real estate in New York perceive the current market as one with a tight inventory for desirable properties. In such a market, multiple offers may be available to a seller. In order to select one offer over another, a seller may demand that the buyer who intends to obtain a mortgage waive the standard mortgage contingency clause in the proposed contract. This post will discuss whether waiving the mortgage contingency is a risk that a buyer should take.
In a typical New York real estate contract, various contingencies (conditions) need to be met between signing the contract and closing. Some of the conditions usually include proof of clear title, a satisfactory appraisal , approval of the finances of the cooperative building and the like. If the conditions are not met, the downpayment will be delivered to the seller or the buyer, depending on the circumstances.
A mortgage contingency clause works as follows. After the contract is signed, the buyer is afforded a particular number of days to obtain their loan approval. If the buyer does not obtain the loan, he can show that the loan was declined and request the refund of the downpayment. During this period of time, the seller is required to remove the property from the market and is relying upon this particular buyer to close. If the buyer has a valid legal right to cancel the contract and receive the return of his downpayment, the seller has lost potentially two months in being able to market the property again. In New York, missing an opportunity to market the property during the Spring and Summer seasons could cause the property to be overlooked by buyers until the following Spring, because most contracts are signed in the Spring and Summer months.