This post is continued from the Seattle Real Estate Professionals blog at the Seattle PI.
The supply of available housing in Seattle is limited by geography and zoning regulations, and our area has a strong demand for highly skilled workers. This means that there are many people in our greater community whose wages are going up and who want to buy a house or condo, but there are not enough properties to go around. This is great for home sellers, but it makes life hard for homebuyers. The housing crunch is intense in the center of Seattle and the effects are felt throughout the county.
With market conditions as they are, seller’s agents can encourage multiple competing offers to purchase their clients’ property. This is simply done by making the property as visible as possible to potential buyers for 10 – 14 days, and then reviewing all offers simultaneously on a date that is chosen in advance. (To keep it fair and legal, the date to review offers is posted in the MLS listing for the property.) If the property isn’t priced too high, then multiple offers are likely to come rolling in, which in turn fetches a higher sale price than could have been achieved with a high list price. This process is very similar to a sealed bid auction, and the strategy is most successful in Seattle’s and Bellevue’s core neighborhoods. This strategy can also be used effectively with more desirable properties throughout King County.
Home buyers are forced to compete against each other on price and terms, but there are strategies that can be used to enhance the buyer’s position while minimizing their sacrifice.
When competing on price, buyers can use an Escalation Addendum. This is an addendum to the purchase and sale agreement stating that the buyer will beat all comparable offers by a certain dollar amount (i.e. $2,000), but will not pay more than a specific price for the property (i.e. will beat all offers up to $775,000). The buyer only needs to determine the subjective value of the property based on their intended use for it, the availability of comparable properties, their desired time frame for moving in and how long they plan to own the property, and then work with their agent to set the offer price accordingly.
Sellers generally prefer that buyers eliminate the inspection contingency that protects buyers from purchasing a home with hidden problems. They aren’t usually trying to hide defects in the property, but sellers don’t want to renegotiate the price after the inspection based on common superficial defects that are itemized by the buyer’s inspector. Buyers can protect themselves and enhance their position by hiring their inspector to examine the property before the offer is written and then waiving the inspection contingency.
A good listing agent knows how to take advantage of current market conditions to get the best price and terms for their client, and a talented buyer’s agent will help their client obtain the property they want while avoiding unnecessary sacrifices.
If you want to discuss buyer or seller strategies further, or if you would like specific information about buying or selling your home, please post a comment or drop me a line at christopherb@johnlscott.com.
posted by Christopher Braxtan @ 2:28 PM
5 Comments:
Two other thoughts. For sellers, even if there is an inspection, why not accept a backup offer? That way you are putting the pressure on the buyer to not ask for ticky-tacky items. If they do...booom you decline and accept the backup (better than being back on the market).
For buyers why not be sure you don't request and get the sellers disclosure until after buyers acceptance which effectively gives you three more days to review the property
As a buyer, what protections are there once an offer has been accepted? Are there any mechanisms that are in place (or that can be used) that keep a buyer from showing up at a closing and saying "I've decided I'm going to ask for an additional $50,000 for my property." My question may seem naive to any seasoned Real Estate professional - but I'm new to this, and a tad intimidated as a first time buyer in such an overwhelmingly seller-tilted market.
Anon,
I'm assuming that your offer is a written purchase and sale agreement (PSA). Once your PSA has been signed by the seller and returned to you or your agent, then you and the seller are legally bound by the terms of the PSA.
The PSA is a legal contract that specifies the terms of a real estate transaction. Among other items, the sale price is one of the terms of the PSA.
Sellers can sometimes back out of a PSA, but they must have a much better reason than wanting to increase the sale price.
Hope this is helpfull. If you would like to discuss this further, please feel free to drop me a line at christopherb@johnlscott.com or post another comment.
I have a signed PSA and the seller tried to renegotiate the sale terms by 1) reducing the agreed amount or 2) move the closing date to 10 months out. When i said no, they "disapprove" inspection contigency, is this legal? How could you use "inspection contigency" as a renegotiation tool?
Anon, I need a little more information to provide an accurate answer for you. Was the seller asking for 10 months to make repairs you requested or offering to reduce the price to compensate you for defects discovered during your buyer's inspection?
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