Right now in Massachusetts there are more homebuyers than there are homes for sale. In their efforts to make a successful bid, buyers are giving sellers more than just over-asking bids – they’re giving up their rights.

Home inspection, mortgage and home sale contingencies used to be common buyer protections in offers to purchase, but they’re becoming increasingly rare as sellers hold out for stronger offers, sometimes favoring a lower bid with no contingencies over a higher bid.

The competition is so fierce in the Cambridge marketplace, buyers routinely make above-asking, cash offers with no contingencies in bidding wars, according to Carol Kelly, senior vice president at Compass Real Estate in Cambridge.

“There’s just so much competition,” Kelly said. “You’re competing against anywhere from two to 30 other buyers. You often have no chance of getting an offer accepted with a mortgage or a home inspection contingency. Sellers want to have a secure sale.”

Kelly doesn’t advise people to waive these protections. She simply explains the market to buyers making their first offer and explains the pros and cons of strengthening a bid by removing the usual contingencies. Still, stripping away all those protections leaves her a little uneasy.

“It makes me nervous, but I make full disclosure to them,” she said. “I do my best to let them know they’re going out on a limb, but a lot of times they’re willing to do that. There’s such limited inventory, it’s a highly competitive market. It is very frustrating for buyers because only one person can win a bid and most properties are going over asking.”

Buyers Need Protection

Just down Mass. Ave. at 4 Buyers Real Estate, also in Cambridge, the exclusive buyer agents tell the buyers they work with that home inspection contingencies are a must, according to agent Dave Twombly.

“I tell every prospective buyer I meet with if they want to waive the home inspection, we’re not the agency for them,” Twombly said. “I’ve never had a buyer waive their right to a home inspection.”

Twombly said he has had clients who waived their mortgage contingency, but only when they confirmed that they had the funds to pay cash for the house if they had to.

“I’ve had four deals in Cambridge this year, all with home inspections,” Twombly said. “I had two deals this year where we had inspections and we beat out people who waived inspections.”

To strengthen his buyers’ offers without increasing their risk, Twombly said he sometimes counsels them to compress the deadline for the inspection, increase the binding deposit and agree not to try to renegotiate home inspection issues that might arise unless they exceed a certain (high) dollar amount.

“That’s the whole reason why we exist as an agency,” Twombly said. “To minimize risk for our clients.”

It’s A Risky Business

The increased risk to buyers who waive contingencies can lead to additional liability for agents, said Andover real estate attorney Mike Lombard, who also sits on the board of directors at the Real Estate Bar Association for Massachusetts.

“Think about the buyer who loses their deposit in this situation,” Lombard said. “They’re going to lash out at whoever they can. Real estate agents have to be very careful about counseling people about waiving contingencies because I think they do have exposure in that regard.”

Lombard said it’s important that agents explain the risks to buyers and make sure that they make fully informed decisions about which contingencies to waive.

“Sometimes that’s just what they need to do,” he said. “They have to go in with eyes wide open. We all make decisions based on assumption of risk. Buyers have to understand fully what the downside is if something goes bad. More often than not, it all works out.”

“One problem I’m seeing more in the market right now is some properties aren’t appraising,” Lombard said. “If you have the extra cash to put down a bigger down payment it’s no big deal. Unless you have an appraisal contingency, you have a potential loss. Most people try to put appraisal contingencies in. If you can get that, that’s what you absolutely want.”

Some of Kelly’s clients have a home inspection done before they make an offer, eliminating the need for a contingency. Others will waive the inspection contingency and have an inspection done for “informational purposes only” after the offer is accepted.

That might mitigate some of the risk for a buyer, but not all of it.

“You can do a pre-inspection, but an offer to purchase is a binding contract,” Lombard said. “I had a client do an inspection for informational purposes only. The inspector found major issues and the buyer wanted to get out of the deal. From a legal technical standpoint, the seller can go after the deposit.”

It’s becoming more common in Cambridge for sellers to ask to see proof of funds with cash offers to ensure they will have the money to close on the agreed upon date. And offers that are contingent upon the sale of the buyer’s current home no longer exist in the Cambridge market, Kelly said.

“You will never get a seller to accept a home sale contingency,” Lombard said. “Some buyers try to use the mortgage financing contingency to get out of a deal and get their deposit back if their house doesn’t sell. But the seller’s attorney might put language in the P&S that the mortgage contingency can’t be used like that.”

Lombard said in his experience – he’s been practicing real estate law for 38 years – he has seen unbalanced markets before, but he’s never seen one so unbalanced for so long.

“I’ve seen these markets go up and down and everyone always thinks prices will always go up,” he said. “At some point it’s going to come down and people who overpaid might find themselves underwater and that’s not pleasant. We’re busy, but I’d much rather see a market that’s more balanced and sustainable. At some point this has to end.”