A recent Article in The Wall Street Journal reported home buyers across the U.S. are finding themselves in bidding wars due to a reduced supply of homes on the market.
I can relate… Last week I listed a very presentable atrium style home in Belleair. The property went on the market Thursday evening. Seven showings Friday, eight showings Saturday and six written offers on my desk to evaluate by Monday morning.
There are several determining factors influencing which buyer my seller and I decided to go to contract with. Obviously, price is a factor, but only one offer was below list price and the rest offered list price or above. Enter terms and conditions.
First on the list is financing. One offer was cash but when I asked his agent to “show me the money” this buyer couldn’t put his money where his mouth was. One down, five to go. Some of the offers were accompanied by “pre-approval” letters from lenders while some promised to provide the same within a day or two. In my experience some of these letters are not worth the paper they are written on. Buyer calls a loan officer, tells the loan officer where they work, how much they make, what they have to put down etc. and the loan officer says “based on what you are telling me” you are good to go then proceeds to email a non-binding pre-approval / pre-qualification letter to the buyer and his agent. When I am representing a seller, we don’t start negotiating until I speak to the lender and ask some basic underwriting questions. Is the buyer Self Employed? Have you run credit? Do you have the buyers tax returns or W2s? Has the buyer provided you with bank statements for down payment verification? Let’s just say the lender who took my call and answered all the above in the affirmative and who also happens to have a great reputation carried a lot of weight.
Next let’s consider the closing date. Does it work for my seller? Generally speaking, a shorter escrow period is desirable unless the seller needs more time. The longer the escrow the more risk because “life happens” as they say.
Next let’s make sure the earnest money deposit is adequate based on the price and length of escrow. Generally a larger deposit is better but I have seen buyers stick to $5,000 like glue while some walk away from tens of thousands if they choose to default on a contract.
Now comes the Professional Inspection contingency. Again, the shorter the better as most contracts now are written with an AS IS WITH RIGHT TO INSPECT clause. The standard language in these contracts gives the buyer the absolute right of withdrawal at the buyer’s sole discretion for any reason prior to the expiration of the inspection period. If that happens the buyers earnest money deposit is returned and they are released from any further obligation. According to the contract, this cancelation is the buyers sole remedy and in turn does not obligate the seller to make any repairs. However, many times in practice what happens is the buyer requests the seller make repairs or financial concessions in lieu of canceling the deal entirely. But that is an entirely different discussion.
Last but not least is the capability and professionalism of the agent representing the buyer. This can vary widely as the “barriers to entry” to obtaining a real estate license are minimal and basically involves passing a reading test. Couple that with the fact many brokers will hire anybody that has a license and a pulse explains why the failure rate for Real Estate agents is a whopping 87% nationally. I digress, but let’s just say when you get to work with a PRO on the other side of a deal it makes a huge difference.
As it turns out, the buyer represented by the best agent who was working with the best lender came up with an offer we couldn’t refuse. Oh, and by the way, my seller got 2.5% over list price.