Are you being outbid on multiple homes? You aren’t alone
We came across this great article on The
New York Times that is a comprehensive look at the annomaly that is multiple
bids over asking and Buyers still losing out. We’ve talked about the bad
combination here in the Silicon Valley Real estate market: low inventory and
many, many well qualified cash buyers. You’re not alone! One of the best things
that you can do for yourself is have the best representation-click
here to read about how The Dawn Thomas Team has recently helped many Buyers make
it to the top of the pile even in this market!
“In a housing market starved for inventory, buyers are stepping over one another to bid on desirable properties. But a high bid may not be enough — sellers are also seeking offers without mortgage contingencies.
“In a housing market starved for inventory, buyers are stepping over one another to bid on desirable properties. But a high bid may not be enough — sellers are also seeking offers without mortgage contingencies.
Usually included in a sales contract, a mortgage
contingency gives buyers the option of backing out if they can’t obtain
financing within a specified period. And if they do back out, they can take
their down payment with them.
But the combination of a competitive market and a
difficult lending climate has made sellers in New York less amenable to such
conditions. They want noncontingent or all-cash offers.
“When you have a market that’s heating up,” said Marc
Israel, the executive vice president of Kensington Vanguard National Land
Services, a title insurer, “sellers feel emboldened to say to buyers, ‘I’m not
going to give you this clause because I don’t want to take the risk that you
can’t get your mortgage.’ ”
The stance makes perfect sense from a seller’s
viewpoint. When the market is hot, added Mr. Israel, a continuing education
instructor for real estate lawyers, “the last thing sellers want to do is tie
themselves up with a buyer for some extended period of time just to have the
buyer cancel the contract.”
For buyers, however, signing a contract without a
mortgage contingency is risky. If their financing was delayed or denied, they
could forfeit their down payment.
Given the typical 10 percent down payment in New York,
“you’re talking about a very significant amount of money at risk,” Mr. Israel
noted.
In such a competitive market, buyers who need
financing may find themselves up against those able to pay in cash or put at
least 50 percent down, said Peggy Aguayo, an executive vice president of
Halstead Property. It is not uncommon for high bids to be passed up for slightly
lower bids that are noncontingent or all cash.
“A typical buyer with 25 or 30 percent to put down”
Ms. Aguayo said, “if they don’t waive that contingency, the seller will go with
someone else.”
The problem can be discouraging. Some of her buyers
have decided to pull out of the market altogether until inventory loosens
up.
Gea Elika, the founder and a principal broker at Elika
Associates, an exclusive buyers’ brokerage, says that “almost every transaction
that we’ve encountered recently has become a bidding war.” Properties that have
struggled to sell may offer buyers more flexible terms, he said, but “the ones
that have the momentum are the ones that just say, sorry.”
His agency never advises clients to go ahead without a
mortgage contingency. For the few who decide that the property is worth taking
the chance, the agency tries to minimize it by first ensuring that the building
involved is warrantable — that is, that banks are willing to lend there.
“We’ll try to go to a major lender that’s preapproved
the building in the last three months,” Mr. Elika said, noting that Wells Fargo
and Chase have the largest preapproval lists in the city. “Then we may try to
find a portfolio lender as a backup.”
Is going ahead without a contingency ever a good idea?
Only if the buyer can afford it, Mr. Israel said. “The advice that I would give
is, so long as you’re comfortable knowing that, if worse comes to worst, you may
have to buy this property all cash, then it’s up to you whether you want to go
forward,” he said. “The truth is, when you have bidding wars and people feel
they’re going to miss out on an opportunity, it’s not the worst thing to go
ahead without a clause — if you have the cash.’ ”
This blog is courtesy of The Dawn Thomas Team who is an
award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos
650-701-7822. We help nice people with selling and buying homes from Palo Alto
to West San Jose!
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