Thursday, August 23, 2012

MARKET TRENDS: Desperate Buyers Try To Game The System With Offers That Backfire

SILICON VALLEY - As the area housing market continues to heat up with as many as 20 home buyers for each listing, buyers are becoming desperate to get their foot in the door.

Here are the 3 most common acts of buyer desperation found inlocal markets.Acts of desperation are leading to more transactions failing and producing only headaches.

Making sight-unseen offers
The market is so competitive, with homes being sold within days, many buyers and their agents are writing offers without laying their eyes on the property.

The offer typically comes with a contingency subject to the buyer viewing or touring the home within a certain time period. Some sight-unseen offers also don't disclose that the buyer has not seen the property.

Throwing a net to snare what you haven't seen, usually brings in an empty net.
When the buyer finally sees the home and it's not what he or she seeks, all parties can suffer lost time and time is money.

Don't accept buyers' offers that come with a contingency to see the property. Accept offers from buyers who've taken the time to visit your listing.

One exception to not accepting an offer contingent upon the buyer actually visiting the property, could be an offer for a property occupied by a renter who does not want to be disturbed or is not cooperating with showing the home.

Otherwise, an offer subject to viewing the home is just not smart.

Writing an offer far above the list price
Low inventories, multiple offers and all-cash buyers prompt many rank-and-file buyers to attempt to "wow" sellers with fool's gold - an offer far above the list prince.
Later, buyers have to cancel because the lender's appraisal won't support the exaggerated sales price. Lenders request appraisals to be sure it isn't over-leveraging the property by lending more than the property is worth.

Risk-averse lenders know over-inflated value transactions contributed heavily to the housing crisis. When values crashed, homeowners were left with more mortgage than their home was worth and lenders were also left holding the bag for over-leveraged homeowners unable to pay the mortgage.

Likewise, appraisers are much more exacting when they value a home andfederal regulators are keeping close tabs on lenders.

An all-cash deal may be the exception to bidding more than a home is worth. All-cash buyers are free to pay whatever they wish and, with an all-cash deal, an appraisal may not be necessary.
However, the lack of an appraisal doesn't remove the risk of paying too much.

Offering unrealistic terms
Another red-flag offer comes with unrealistic terms such as contingency removals within five days of accepting the offer. Offers with fast contingency removal requirements typically come
from buyers and agents who promise more than they can deliver.

Setting short contingency periods gives the seller a false sense of security and lull the seller into believing the buyer will quickly have the loan financed, quickly complete inspections and accept the inspections. The promise of fast action induces the seller into believing he or she has a solid sale.
Short and unrealistic contingency periods are a recipe for disappointment and disaster in today's active market. The home selling process needs time to run its course.

Inspection companies cannot always get out to inspect a property within five to seven days. Expect a wait as long as two weeks.

The home sales and refinancing markets are strong and growing as consumers seek to cash in on historically low mortgage rates. Short-staffed by the previous downturn, applying stiff underwriting rules and dealing with new regulations, lenders are backlogged.

Getting an appraisal completed and underwriting a loan within two weeks is virtually unheard of in this market.

In this market, all parties need to be smart and realistic and avoid offers of desperation.
Real Estate Glossary: Contingency - A contingency is a condition placed on the sale of the property. For example, a buyer could offer to purchase a home subject to a professional home inspection - not to be confused with the buyer touring or viewing the property. That means the buyer has a right to a home inspection and if the inspection turns up deferred maintenance, items in need of repair or other less than favorable conditions, the buyer could ask for a resolution before the deal proceeds. In the case of a home inspection that turns up problems, the buyer could ask for repairs or have the right to cancel the sale.

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