This crazy house market feels like we are in an Audi on the autobahn in Germany and the view out the window is blurred because we are traveling so fast. My buyers are fighting to get homes but sellers are making it a challenge to win a bid. Every time I write a contract to purchase a home, 10 other buyers are writing offers on the same house. And we have learned that price is not the only factor sellers are considering.
Yes, you have to offer a competitive price to win the bidding war. This often means writing an escalation clause into the contract. “Buyer is willing to offer $5,000 more than the highest competing offer up to X dollars total contract price.” Buyers have to be aggressive on price to win the contract bidding war.
But, I have had buyers who offered an aggressive purchase price and still lost the contest to purchase a home. The reason why is a real head knocker for me. A year ago I would never have suggested a buyer make an offer without two very specific contingency clauses.
The first is the appraisal contingency clause. This clause essentially says the buyer is not obligated to purchase the home if the appraisal (ordered by a mortgage bank or ordered by the buyer) does not equal the purchase price of the house. Common sense would tell you you do not want to pay more for the house than a house value determined by an appraiser. Especially if you have a limited down payment – more on this later.
Sellers are now saying “we don’t care what the house appraisal value is – so don’t include the appraisal contingency in the contract offer.” It is a seller’s market and sellers are calling the shots. The belief is the appraisal industry can’t keep up with this hot market and the buyer is just gonna have to take a risk on the house appraisal.
I can kinda understand buyers going for this if they are making a cash offer or if they are sitting on a lot of equity to put down on the purchase of a home. But most buyers don’t have that luxury. They have a limited amount of down payment cash. If the appraisal value is less than the purchase value of a home then sellers are demanding buyers cough up extra cash (above their original down payment estimate from the mortgage lender) to complete the purchase. It is indeed risky business for hoe buyers.
Secondly, sellers want buyers to submit offers that don’t have a due diligence period. Due diligence is the 10 to 14 day period when buyers can have a house inspected after they have a binding contract with the seller. Seller’s don’t want to keep their home off the market for ten days so they are telling buyers to “lump it” on inspection contingencies and due diligence. Buyers need to be pretty sure nothing major is wrong with a home before they sign a contract that does not have a due diligence clause IMHO.
If you are ready to sell a home it is a great market. Buyers are taking it on the chin in this crazy house market