It’s only making our own lives harder.
A contingent buyer is a stronger buyer.
I’m going to review several pieces of information today that we’ve already discussed, some in length. When I string them together you are going to be very clear on a single fact that is likely to solve your real estate crisis. Here it is: A contingent buyer is stronger because they are not looking for a way out of the deal.
Fall Out is High
…and has been for a while. I’ve spoken at several sales meetings for a couple of different brokerages over the past 6 months and at each there was a conversation about fall out and making sure you have your back up offers fully executed. I’m going to take a quick sidebar here to explain that a back up offer is a real, completely negotiated, accepted offer in second position. If the buyer of the initial offer cancels for any reason, the seller has already accepted the back up offer and that moves into escrow. Back-up offers are sometimes discussed with less formal terms, but this is how it is supposed to work. And by supposed to, I mean legally. This is how it works, legally.
We know that cash buyers can be fickle and they often make offers on properties, sight unseen. So it’s no surprise when they cancel. However, the reality is that any buyer making an offer on a property does not agree to buy it. They are aiming to take it off the market so someone else can’t buy it while they do their due diligence. A buyer is protected by their inspection contingency, appraisal contingency and loan contingency – all of which give them a way out of the deal without significant recourse. They get their earnest money deposit back as long as they cancel within these designed time periods. There is a significant shift of power when a seller accepts an offer than leaves them in a somewhat vulnerable position.
We’re seeing it more and more where buyers are looking for a way out of the deal. They feel like values are high and so are financing terms, so they don’t really want to buy a house with any amount of deferred maintenance. It’s like buying a designer bag with scuffs on it. For what people are paying for real estate right now, they feel like they should get something shiny and fresh.
You know who isn’t looking for a way out?
A contingent buyer. Once a seller has accepted a contingent buyer’s offer, that buyer has to sell their house. And once they do, they really don’t want to lose the house they’re planning to move to. No one wants to be homeless. They are a lot less likely to nitpick the inspection report and threaten to cancel, not only because they need a place to live but because they are in a similar position as sellers of their departing home. Everyone knows, karma is a bit…and that is why I said this could triple your escrows this year. Because we have a down leg going here where three deals are happening, and all parties are pretty invested in getting to the finish line. Let’s hope the lenders on all these deals have their shit together.
Bridge Loans
I would be remiss not to explain my bridge loan product here as well, because it has helped my clients make noncontingent offers. I didn’t lead with it because I will push hard for my clients to get their contingent offer accepted. We are closing contingent deals every single week here. I simply explain to the listing agent what I just explained here. My borrowers are going through a divorce, they won’t be looking to cancel because she needs to maintain stability for their children. Or my borrower is serious – his house doesn’t fit his needs, he’s pricing it competitively, he’s been looking for the right property for over 6 months, he wants to actually live in your house. He’s looking for that path, not the path of least resistance.
I do have the bridge loan in my back pocket though.
So when a contingency is just not in the cards, we can lend you the funds you need for your down payment from your current home. Then you don’t have to be contingent on your sale in order to close. The best part is you can still try to be contingent – list your house for sale as soon as your offer is accepted on the new house and if the stars align and we can close both simultaneously, we will. You won’t have your back against the wall and be losing sleep about getting an offer fast enough because you’ll know you have the bridge loan in place. You won’t lose your new home, no matter what.
If you can’t qualify to carry both mortgages, then we can look at our cash offer program.
So, the moral of my story today is – let’s stop this rhetoric about contingencies being a challenge. The entire real estate market is a challenge, it’s my job to find and highlight the paths to success for my clients.