There was a time – it wasn’t that long ago – when contingencies were the top challenge to get to closings a home sale. That’s not the case in today’s market.  

Some buyers are waiving appraisals and inspection contingencies to get the edge or equal footing in this uber-competitive market. In some ways it’s not the most prudent decision, but it is a tactic in today’s market. 

The most common waiver is the appraisal contingency (28 %) and the inspection contingency (25 %), according to a recent survey of more than 3,300 REALTORS®. 

But what about the rest of the picture? 

• No contingency waived – 22%. 
• Financial contingency – 11%. 
• Home sale contingency – 9%. 
• Title contingency – 2%.  
• Other – 2%. 

Many buyers waiving contingencies are either paying cash or using conventional financing. Cash-buyers account for more than a third of local home sales. 

Buyers using FHA or VA loans can’t waive the appraisal or inspections, according to Gay Cororaton, a research economist for the National Association of REALTORS® (NAR). That often puts them at a disadvantage to buyers who don’t have to follow FHA or VA financing rules.  

While FHA buyers do not dominate the local market, their numbers have been increasing. So have the number of transactions from local veterans and those moving here after their service. Veterans account for a little more than 10% of the local population. 

“In a housing market where sales are moving swiftly, the time to undertake the inspection and appraisal is creating a hurdle for buyers obtaining FHA-insured loans, who are typically first-time buyers, and buyers obtaining VA-guaranteed loans,” Cororaton wrote in the NAR Economic Outlook blog.  

Buyers are also competing with those bringing more money to close. The share of mortgages with at least a 20% down payment increased to 52% in May. That’s up from about 40% in 2011, according to the NAR survey. Nearly one in three first-time buyers made a down payment of at least 20%, up from about 25% in 2011. The local down payment norm during that period was 12%. 

NAR’s blog notes that buyers with conventional financing are edging out those with FHA and VA loans. Both offer low down payment financing. Conventional conforming mortgages accounted for 74% of mortgages issued in May, an increase from 65% in 2018. On the other hand, the share of FHA-insured mortgages comprised 14% of mortgages in May. In past years, it was around 20%. And the share of VA-guaranteed loans fell to 7% in May, down from its 10% average in recent years. 

FHA had a market share of almost 7% of existing-home sales in the Johnson City metro area during the first quarter. The share of cash sales was 38%.  

FHA made 9.7% of the existing home sales in the Kingsport-Bristol metro area during the first quarter, and 32% of the sales were cash deals.  The number of local VA sales was unavailable. 

Real estate pros say VA loans also have a reputation for receiving low appraisals that can make it difficult to compete in a market where prices are increasing quickly. “It is extremely difficult for FHA/VA buyers to get accepted in a multiple-offer situation,” writes one real estate pro in the REALTOR® survey. “They are on the bottom of the hierarchy.” 

NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee – Southwest Virginia region representing over 1,400 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, Trends Reports, and the regional market analytics can be found on the NETAR websites at https://netar.us/voice-real-estate-northeast-tennessee.