To say this has been a challenging year as a REALTOR® is an understatement. Today’s market is different from any other I have experienced in my 15 years helping clients buy and sell real estate. Why?
- The economy is robust
- Interest rates are historically low
- There is a shortage of inventory (homes for sale)
- Buyers are frantic to find the right home but at the same time know they are paying top dollar creating a lack of confidence
- Sellers know the market is hot and are being extremely aggressive on pricing
The combination of these factors has resulted in a new and challenging phenomenon: buyers are putting a home under contract before they are certain they want to actually buy it. As I wrote about in a prior article, home sales are falling through.
Essentially, buyers are using the “Due Diligence” contingency to tie up a home and then decide if they want to go through with the sale. A corollary to this behavior is the buyer writing a very attractive offer, getting the property under contract, and then using the Due Diligence / home inspection contingency to negotiate a major price reduction.
Both of these behaviors, in my opinion, lack transparency and ethic decency. I personally would not encourage a buyer I am representing to engage in such behavior. Unfortunately, in my representation of sellers, I have been on the receiving end of these tactics multiple times this year.
And it’s not just me. My colleagues are lamenting the same thing. In fact, my brokerage is now keeping track of cancellations. Understanding that this wasn’t just a one-time experience with a particular home has gotten me thinking about methods to protect my seller clients.
Some Creative Solutions I Intend to Employ to Protect Sellers
- Get a pre-inspection. This is analogous to detailing your car before selling it. If you know there are issues, you can uncover those with your own inspection. Then, address them at your leisure with an inexpensive handyman as opposed to trying to schedule repairs or estimates during the heat of a negotiation.
- Negotiate contract language to prevent buyers from weaseling out of the contract based on the inspection. If you have the pre-inspection and you know the home is free of major defects, you can negotiate some pretty strong language to mitigate the due diligence contingency.
- Get non-refundable earnest money at the expiration of due diligence.
“Desperate times call for desperate measures.”
When representing a seller, the due diligence on the seller side usually meant verifying the buyer was pre-approved or had the cash to close. Now, we need to go one step further by making sure the buyer is committed to buying a particular home at the negotiated price.
It takes a skilled and experienced listing agent to not only prepare a home for sale visually, but also negotiate a real estate purchase contract that has the greatest chance of getting to the finish line.