22 Sep Offer Issues Home Buyers Should Be Aware of in Competitive Markets
As home prices in many markets across the country continue on their meteoric rise and the amount of available homes dwindles, there is hardly a market out there that isn’t competitive for the buyer. With homes becoming a hotter commodity every day, sellers have been in the driver’s seat for some time now. As a result, a number of issues have arisen dealing with offers and counteroffers. For the right home in the right market, home buyers have had to resort to different strategies in order to get the attention of the seller. Outlined here are the three most common issues buyers and sellers run into when bidding on homes in a competitive market.
In competitive markets, buyers may resort to waiving sale contingencies on factors such as the appraisal, loan or inspection in order to lure a seller into accepting their offer. Conversely, the seller may extend the notion that offers with no contingencies will be favored over others.
While this can be a smooth and effective tactic, buyers run a very high risk at waiving any or all contingencies as they are liable to lose money invested in the earnest deposit if they are unable to close on the home in the end. While all disclosures must be made to the buyer prior to the offer even being made, the appraisal, inspection and loan factors are there to help protect the buyer and ensure a smooth and easy transaction for both parties. Without these properly put in place, a buyer can open themselves up to a lot of risk if even the slightest matter of the deal should fall through or change.
For buyers who are very serious about putting down the right amount of money for a home, the option exists to place an escalation clause, or “sharp bid” on an offer. This type of offer usually involves the buyer offering to beat the next highest bid by “X” amount of dollars. In situations where multiple bids are being placed on a home, this gives the buyer a great advantage as they are always on top of the bidding pool.
The downside to this tactic, however, is that there is a very real possibility that the buyer may end up paying more than they initially expected. A cap can be placed on sharp bids, but savvy home sellers will most likely counter offer with other bidders to fetch that high price.
Many problems also arise for buyers when savvy home sellers receive multiple offers. When a seller counters a good offer, but then gets another, even better offer, they have to right to revoke their counter from the original offer. This can be done orally or through the more formal method of the “Withdrawal of Offer” form provided by CAR. This means that buyers are on the clock the second a counter offer is made, and must act accordingly in order to secure their purchase.