How do you know that our local housing market is about to experience a shift? When you are having a really hard time finding buyers good homes in nice neighborhoods you know things are changing. This week my team experienced something that the Hampton Roads real estate market hasn’t seen in a few years, multiple offers above list price with a seller requiring buyers to remove the appraisal contingency.
Let me explain. My buyers have been looking for a home in a very desirable school district in York County. We have seen absolutely everything on the market and nothing has worked, either the wrong layout or the homes needed too many renovations. We made an offer on a fairly nice “flip” home but the investor refused to budge on any concessions and we couldn’t get a deal together. Strike 1. My team has been broadcasting through our huge agent network that we were in need of a nice home. We learned that a new home would go on the market and we scheduled the first showing on the house. Our buyers loved the home and we quickly drafted an offer. The listing agent responded that the home had multiple showings on the first day on the market and that the sellers would be waiting for multiple offers to come in.
The York County market is what I focus on every day. I know my numbers and I know all of the recent sales and inventory. I told my buyers and the listing agent that the home was over priced at the list price, I was really worried that the home would not appraise for the list price. The next day we were informed that there were two other competing offers on the property and that we would be allowed to submit our final and best offer. The sellers had also prepared a list of items that they wanted to be included in any accepted contract. They stated that they wanted the buyer to remove from their offer the appraisal contingency. When a buyer applies for a loan on a home, the bank sends out their appraiser to substantiate the value of the property. The appraiser says “Mr. Banker, Yes this property is worth the amount of money that you are about to loan to this buyer.” The appraiser bases his opinion on recent comparable sales in the immediate area. If there are no comparable sales at that price, then the appraisal can come up short. All contracts in our area state that if the appraisal comes up short, the buyer does not have to complete the sale, and that all parties can negotiate new terms. When this contingency is removed, a buyer has already agreed to pay the contract price, regardless of the appraised value. The buyer is facing a very dangerous situation.
Let’s say that I was indeed correct in the fact that the home was $15,000 or even $20,000 over priced originally. And then due to the multiple offer situation, the price is bid up to another $5,000 or $10,000 above the original list price. If the appraisal comes in where I predicted, the buyer could be faced to show up at closing with an additional $30,000 of cash and immediately be upside down by the $30,000. This situation is exactly what caused the housing crash in 2007. And the buyer might not have the funds to show up with the shortage and end up in default of the contract. The sellers could have to start over and very possibly end up with a much lower sales price. There is extreme risk in a situation like this for all parties.
It’s really hard for me to tell a buyer that they have to let a house go, but I had to in this situation. It’s my job as their agent to advise them without letting emotions in the way. Most buyers only buy a few homes in a lifetime. I help people buy homes every week and that experience helps my clients make great decisions. Strike 2. Now, my team has to focus even harder to find this family a home. If we can’t come up with something, then they may be forced to rent when they really want to be homeowners and grow some roots.
I do think that this situation is an isolated incident and do not think that we are entering a super heated market. But, I do think that we are entering a market shift where we will see more of a seller’s market. With falling inventory, we should see a slight increase in prices and days on market. If you are buying a home or selling a home it is super important to have an experienced agent that understands the current housing market. Great marketing is still very important as well as superb guidance on setting a realistic market price for a home. Don’t forget, only the best homes are getting multiple offers or even selling, so make sure that your home is in the best possible condition before you list it for sale.
Have a great day and feel free to call or email me with any questions or comments.
Reames Realty Group
Mike can be reached at (757)871-2146 or at firstname.lastname@example.org