2014 Government Regulations & Business Summit
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They’re back after barely a decade: Escalation clauses in real estate contracts, “naked” contingency-free offers and lowball-priced listings designed to pull in dozens of bidders and turn routine sales transactions into auctions.
These are all techniques last seen with frequency during the frothiest months of the housing bubble in 2004-05, when prices were rising at double-digit rates, buyers thought they couldn’t lose money in real estate, and mortgage financing was available to anybody who could sign a loan application. Now they are reappearing in some of the hottest sellers’ markets from coast to coast – the byproduct of severe shortages in houses listed for sale combined with strong demand by qualified purchasers. Nationwide, according to surveys of 800-plus local markets by Realtor.com, inventories are down by 16 percent from year-ago levels. But in the hottest areas, listings are down by double or even triple that and prices are moving up fast.
Buyers, meanwhile, are out in droves, scanning newspapers and online realty sites for the latest listings, and signing up for alert services provided by realty firms. In the San Francisco Bay area, for example, agents say that realistically priced new listings are attracting dozens – sometimes even hundreds – of shoppers to open houses and stimulating bidding competitions with 30 to 50 or more participants.
Bidding wars are also increasingly frequent on well-priced listings in Washington, D.C., and its Maryland and Virginia suburbs, much of California, Seattle, Phoenix, Las Vegas, Richmond, Va., Boston and parts of Florida, among others. In a handful of fiercely competitive areas, some listing agents reportedly are even restricting buyers’ access to properties to narrow time windows – say, a few hours on Saturday and Sunday – in order to fan the flames.
To get a leg up in such situations, some buyers and their agents are using techniques that can be effective, but that also come with drawbacks and snares. Among them:
• Contingency-free and contingency-light offers. Carl Medford, an agent with Prudential California Realty in the San Francisco East Bay market, says these are almost routine for buyers determined to win a bidding competition. He calls them “unprotected” contract offers. Essentially the idea is to strip away some or all of the customary contingencies in an offer that might irritate a seller or render the buyer’s bid less attractive. The financing contingency, which makes the entire transaction dependent on the buyer obtaining a satisfactory loan and appraisal, often is the first to go if the bidder is confident of qualifying for a mortgage, has been preapproved or is willing to pay what could be a lot more than market value.