Imagine you are playing a baseball game and suddenly an announcement is made that the rules have changed:
- you get 2 strikes instead of 3
- 1st base is now 3rd base
- If it’s a shutout after 4 innings, game over
This is kind of how Real Estate Agents are feeling in the current market. Although the “rules” technically haven’t changed, this HIGHLY COMPETITVE market has led to new terms and techniques that Buyers and Sellers should be aware of.
Over-bid . . . Escalation Clause . . . No Contingencies . . . Appraisal Guarantee . . . Love Letters . . . Multiple Offers. . . Highest and Best
The terms above are used frequently in this new, more competitive market and just in case you aren’t familiar with them, here is a quick overview:
- Over-bid: This is simply an offer to purchase at an amount OVER the current listed price.
- Escalation Clause: This is a clause added to a purchase agreement where a Buyer offers to pay a dollar amount OVER any other offers received, typically up to a specified amount. i.e.: Purchase price to be $150,000, Buyer will increase the purchase price by $500 over any other comparable offer received up to $160,000. This can be risky for the buyer and other verbiage is typically added such as offers must be available for review. However, the seller is not obligated to produce other offers and may just choose to counter offer at a specific price.
- No Contingencies: Buyers typically write inspection contingencies into their Purchase Agreement such as 10 days from the date of acceptance to perform structural, electrical, radon, pest, or other types of inspections of the home. After the inspections are complete, they can renegotiate for repairs/remediation or walk away from the deal if they find problems. A no-contingency offer waives this inspection period meaning the Buyer is willing to take the home “as-is”, which can be risky to the buyer but also make their offer very attractive to the seller.
- Appraisal Guarantee: With overbids becoming more common, Sellers may be concerned that their house may not appraise as high as the amount offered. If a Buyer has cash available to put toward the purchase, they may offer to pay cash over appraisal value to make their offer more attractive to a seller, i.e. Buyer will pay up to $5,000 over appraised value.
- Love Letters: Some buyers choose to write a letter to accompany their offer to purchase. These “love letters” can include what they specifically like about the home, information about the Buyer’s family and/or why they see themselves living in this home and why the seller should choose their offer. Some people even include pictures of their family with these letters. Some sellers do not wish to receive these which is their choice.
- Multiple Offers: Multiple Offers simply means a Seller has received more than one offer on a home. The Seller’s Realtor (at least the good ones), will prepare a side-by-side summary of all offers received showing items like Purchase Price, Contingencies, Financing type, Closing Date, etc. It is important to remember that Purchase Price is usually NOT the only important factor in the Seller’s decision.
- Highest and Best: When a seller has received an acceptable offer, and/or multiple offers, the listing realtor may contact all Buyer’s Agents who have made offers or still have showings scheduled asking for their clients “Highest and Best” offer by a certain day and time. Buyers who have submitted bids can increase their bids or keep them the same and the Seller will choose the “best” offer they have received after the day/time specified.
Yes, it’s a whole new ballgame and now more than ever its particularly important that Buyers and Sellers work with experienced agents to help them achieve their goals. I have successfully navigated all the situations above on multiple occasions and would love to speak with you more about how to “play ball” in this new market. Contact me today for more information.