I think it’s fair to say that the market has shifted in favor of the seller. The greatest variable right now is low inventory. If the supply of homes remains low, competition among buyers will continue to drive prices upward, but this time, not with the help of the banks.
Banks don’t want to add to their own troubles therefore their appraisals remain conservative. That means if a buyer wants to pay more for a home, they’ll have to pay out of pocket.
In January, many of us in the real estate industry anticipated that the market would improve, and it has. Prices are rising and buyer demand is high and properly priced homes are going under contract quickly – very quickly.
Multiple offer situations are back and so are escalation clauses and big earnest deposits. But, that’s not all. Home inspections and appraisal contingencies (buyer safeguards) are sometimes being waived. These multiple offers are more prevalent in low-to-mid price ranges simply because more people can afford the home.
The offer price is obviously a deciding factor as to whether an offer is selected, and in multi-offer situations we’re seeing the escalation addendum in play again. An escalation clause is a provision in a purchase contract allowing for incremental increases in the offer price, up to a predetermined amount, based on and evidenced by competing offers.
But in a multi-offer situation, a "good" offer price may not be enough for a buyer. Today, just like in 2005, the terms of an offer are very important to the seller. If the buyer waives the home inspection, theoretically the seller won’t be asked to make repairs. That equates to “less pain” than a contract that contains a home inspection. Similarly, when a home buyer waives the appraisal contingency, it equates to less worry for a seller who is concerned about whether the house will appraise (in the worst case scenario, a low appraisal can cause a deal to fail).
Multiple offers aren’t as prevalent for higher priced homes, but even homes in higher price ranges are getting offers faster than they were just a few months ago and the offers are often more closely aligned to a buyers “highest and best offer”. We’re seeing less “low ball” offers and a three percent seller subsidy is no longer “a given”.
Buyers are Keeping Their Sanity
So far, we haven’t seen that buyers are willing to pay prices that are substantially higher than market value (not to be confused with list price). Even when home buyers waive the appraisal, it’s most often in low risk cases - the risk being a few thousand dollars, not the tens of thousands we saw during the height of the market. The fear of homes dropping in value at a future point in time is still a concern to buyers. The level of concern has dissipated, but it hasn’t disappeared.
If there is a substantial increase in inventory the tides could turn toward the buyer, but, even if it does remain a sellers’ market, the housing crisis, still unfolding on a national front, is a constant reminder that will likely keep people from making rash decisions.
Susan Borrelli is a Realtor with Re/Max Gateway in Lorton.