Competitive Market Strategies Home Buyers Should Be Wary Of

29 Sep Competitive Market Strategies Home Buyers Should Be Wary Of

The national housing market has never been hotter, and in locations such as Southern California, low inventory levels accompanied by rising home prices mean that temperatures in the housing market climate are reaching a fever pitch. In order to secure the perfect home, buyers are having to resort to interesting and somewhat risky measures more and more. Market conditions are very tight for buyers in almost every market across the country, causing buyers to invest in tricky practices such as no-contingency offers, sharp bids and shady counteroffers.

While some of these practices can sometimes work to help get that dream home in escrow, they are more often much too risky for the buyer and can result in catastrophic consequences. Here is what you need to know about the various offering practices in a “hot” market:

Waiving Contingencies

In order to get a seller to agree to a sale without offering more money, many buyers will waive the contingency of a home sale on the appraisal, loan or inspection. This means that sellers don’t have to rely on one, two or all of these things in order for the sale at the offered price to go through. This can be really risky for a buyer as an appraisal may reveal that the offer is too high compared to what the home is actually worth given market conditions, or an inspection may reveal costly work to be done on the structure of the home.

The state of California works to reduce the risk of buyers by requiring all disclosures to be made to the buyer. However, if there is an underlying problem that the seller isn’t aware of until the inspection, the buyer can still end up on the losing end.

Sharp Bids

In areas where home inventory is severely strapped, it is not uncommon for contentious bidding wars to break out on the available homes. Serious bidders will attempt to trump others by offering what is called an escalation clause, or sharp bid, to their offer. This means that the buyer will offer “X” amount of dollars more than the highest offer, usually with the contingency that the seller shows the offer to the buyer.

This gives the buyer the advantage of always having the highest offer, but could result in having to bid way more than what the house is actually worth. The buyer is allowed to put a cap on their offers, but the legality of these clauses have long been questioned and aren’t a recommended practice.

Revoked Counteroffers

When a seller proposes a counteroffer to a buyer’s original offer, they are not locked in to that counteroffer. The clock is ticking the second the buyer gets that counteroffer, and if the seller receives an even better offer from a different buyer in the meantime they are free to accept. The California Association of REALTORS® requires that the seller complete a formal withdrawal in order to revoke any counteroffers, however buyers should be aware that in a hot market, time is of the essence.