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When making an offer on a home in Sioux Falls, contingencies are a critical part of the purchase agreement. These clauses protect your interests by allowing you to back out of the contract or renegotiate terms if certain conditions are not met. In a competitive market like Sioux Falls, where multiple offers and waived contingencies are increasingly common, understanding which contingencies to include—and which you might safely waive—can make the difference between securing your dream home and losing out to another buyer.
This guide explains the most common contingencies in Sioux Falls, how they work, and what to consider before including or waiving them.
What Is a Contingency in a Real Estate Offer?
A contingency is a condition or action that must be satisfied for the real estate contract to become binding. If a contingency is not met, the buyer can typically walk away from the deal and receive their earnest money deposit back. Contingencies protect buyers from unexpected issues, such as financing falling through, a low appraisal, or significant problems uncovered during the home inspection.
In South Dakota, contingencies are outlined in the purchase agreement and must be agreed upon by both the buyer and seller. The most common contingencies in Sioux Falls are financing, appraisal, inspection, and home sale contingencies.
Common Contingencies for Sioux Falls Home Offers
Financing Contingency
A financing contingency allows the buyer to back out of the contract if they are unable to secure a mortgage loan at the terms specified in the offer. This contingency is especially important for buyers who are not paying cash, as it protects them if their loan application is denied or if the lender’s terms are less favorable than expected.
How it works: The purchase agreement will specify a deadline by which the buyer must obtain loan approval. If the buyer’s financing falls through before this deadline, they can cancel the contract and receive their earnest money back.
Sioux Falls market insight: In competitive neighborhoods like Prairie Hills or Jefferson Heights, some buyers waive the financing contingency to make their offer more attractive to sellers. However, this is a significant risk. If you waive the financing contingency and your loan is denied, you could lose your earnest money and still be obligated to purchase the home. Only consider waiving this contingency if you are pre-approved for a mortgage and highly confident in your financial situation.
Tip: If you are pre-approved, you can strengthen your offer by including a pre-approval letter from your lender. This reassures the seller that you are a serious buyer with financing already in place.
Appraisal Contingency
An appraisal contingency allows the buyer to renegotiate or back out of the contract if the home appraises for less than the purchase price. Lenders require an appraisal to ensure the property is worth the amount they are lending. If the appraisal comes in low, the lender may refuse to finance the full amount, leaving the buyer to cover the difference or walk away.
How it works: If the appraisal is lower than the purchase price, the buyer can request that the seller lower the price to match the appraisal, pay the difference in cash, or terminate the contract and receive their earnest money back.
Sioux Falls market insight: In a competitive market, some buyers waive the appraisal contingency to make their offer stand out. However, this is risky. If the appraisal comes in low and you have waived the contingency, you may be required to bring additional cash to closing or lose the deal entirely. Before waiving this contingency, discuss the risks with your real estate agent and lender.
Inspection Contingency
An inspection contingency gives the buyer the right to have the home professionally inspected and request repairs or concessions if issues are found. This is one of the most important contingencies, as it protects you from purchasing a home with hidden problems, such as structural defects, electrical issues, or plumbing problems.
How it works: The purchase agreement will specify a timeframe for the inspection, typically 7 to 10 days. If the inspector uncovers significant issues, the buyer can request that the seller make repairs, provide a credit at closing, or reduce the purchase price. If the seller refuses and the buyer is unsatisfied, the buyer can terminate the contract and receive their earnest money back.
Sioux Falls market insight: In a seller’s market, some buyers waive the inspection contingency or opt for an informational inspection instead. An informational inspection means the buyer still hires an inspector but agrees not to request repairs from the seller. This can make your offer more competitive, but it also means you will be responsible for any repairs needed after closing. Only consider this approach if you are comfortable taking on the risk and have budgeted for potential repairs.
Tip: Even if you waive the inspection contingency, it is still wise to have the home inspected for your own knowledge. This way, you can make an informed decision about whether to proceed with the purchase.
Home Sale Contingency
A home sale contingency allows the buyer to make an offer on a new home while still needing to sell their current one. This contingency protects the buyer if their existing home does not sell within a specified timeframe.
How it works: The purchase agreement will include a deadline by which the buyer’s current home must be sold. If the home does not sell by this date, the buyer can terminate the contract and receive their earnest money back.
Sioux Falls market insight: Home sale contingencies are less common in competitive markets, as sellers are often reluctant to accept offers with this contingency. If you need to sell your current home before purchasing a new one, consider other options, such as a bridge loan or renting temporarily, to make your offer more attractive.
Less Common but Useful Contingencies
Title Contingency
A title contingency ensures that the property’s title is free of liens, judgments, or ownership disputes. In South Dakota, the title company typically handles the title search and resolves any issues before closing. However, including a title contingency can provide additional protection if problems arise.
HOA Contingency
If the home is part of a homeowners association (HOA), an HOA contingency allows the buyer to review the HOA’s rules, fees, and financial health before committing to the purchase. This is especially important in Sioux Falls, where some neighborhoods have active HOAs with specific regulations.
Kick-Out Clause
A kick-out clause, also known as a right of first refusal, allows the seller to continue marketing the home and accept a better offer even after signing a contract with a buyer who has a home sale contingency. If the seller receives a better offer, they can give the original buyer a specified period (usually 24 to 72 hours) to remove their home sale contingency and proceed with the purchase. If the buyer cannot do so, the seller can accept the new offer.
Contingencies to Consider Waiving in Sioux Falls
In a competitive market like Sioux Falls, waiving certain contingencies can make your offer more attractive to sellers. However, waiving contingencies comes with risks, so it is important to weigh the pros and cons carefully. Here are the contingencies buyers most commonly waive:
Financing Contingency: Waiving this contingency signals to the seller that you are a serious buyer with secure financing. However, if your loan falls through, you could lose your earnest money and still be obligated to purchase the home.
Appraisal Contingency: Waiving this contingency can make your offer more appealing, but it also means you will be responsible for covering the difference if the appraisal comes in low.
Inspection Contingency: Waiving the inspection contingency or switching to an informational inspection can make your offer more competitive. However, this means you will be responsible for any repairs needed after closing.
Tip: If you are considering waiving contingencies, discuss the risks with your real estate agent and lender. It is also a good idea to have a backup plan in place, such as additional savings to cover unexpected expenses.
What Contingencies Are Standard in Sioux Falls?
In Sioux Falls, the most common contingencies included in purchase agreements are financing, appraisal, and inspection contingencies. These are considered standard protections for buyers and are typically expected by sellers, especially in a balanced market.
In a seller’s market, where demand outpaces supply, sellers may prioritize offers with fewer contingencies. However, even in competitive markets, most sellers will still accept offers with standard contingencies, as long as the rest of the offer is strong.
How Many Contingencies Should You Include?
The number of contingencies you include in your offer depends on your situation, the property, and the market conditions. In general, the more contingencies you include, the less attractive your offer may be to sellers. However, contingencies are also your primary protection against unexpected issues.
For buyers in a competitive market: Consider including only the most essential contingencies, such as financing and inspection. You may also discuss with your agent whether to waive the appraisal contingency or switch to an informational inspection.
For buyers in a balanced or buyer’s market: You can include more contingencies, such as a home sale contingency, to protect your interests without risking your offer’s competitiveness.
What Happens If a Contingency Is Not Met?
If a contingency is not met, the buyer typically has the right to terminate the contract and receive their earnest money back. However, the specific outcome depends on the terms of the purchase agreement and the type of contingency:
- Financing Contingency: If the buyer cannot secure financing, the contract is terminated, and the earnest money is returned.
- Appraisal Contingency: If the appraisal comes in low, the buyer can renegotiate the price or terminate the contract and receive their earnest money back.
- Inspection Contingency: If significant issues are found during the inspection, the buyer can request repairs or terminate the contract and receive their earnest money back.
- Home Sale Contingency: If the buyer’s current home does not sell within the specified timeframe, the contract is terminated, and the earnest money is returned.
Important: If a contingency is not met and the buyer does not terminate the contract, they may be obligated to proceed with the purchase, even if the issue is not resolved.
Tips for Writing Strong Contingencies
To make your offer as competitive as possible while still protecting your interests, follow these tips for writing strong contingencies:
Be specific: Clearly outline the conditions that must be met, deadlines, and consequences if the contingency is not satisfied.
Prioritize your protections: Include the contingencies that are most important to you, such as financing and inspection, and consider waiving less critical ones if needed.
Work with your agent: Your real estate agent can help you craft contingencies that are both protective and appealing to sellers. They can also advise you on which contingencies are standard in Sioux Falls and which you might consider waiving.
Stay realistic: Avoid including too many contingencies, as this can make your offer less attractive to sellers. Focus on the protections that matter most to you.
Communicate openly: If you need to extend a contingency deadline, communicate with the seller as soon as possible. Open and honest communication can help keep the transaction on track.
Final Advice for Sioux Falls Buyers
In Sioux Falls’ dynamic real estate market, contingencies are a balancing act. They protect you from risk but can also make your offer less competitive. The key is to include the contingencies that are most important to you while being mindful of the seller’s perspective.
Before making an offer, discuss your contingency strategy with your real estate agent. They can provide insights into the local market and help you craft an offer that is both protective and appealing to sellers. Remember, the goal is to secure the home you want while minimizing your risk.
