As the market normalizes, here are a few things we need to revisit. Folks tend to have short memories and these things were practically gone for the past couple years.
1) Home Sale Contingencies–Never has been the most welcome part of a contract but for the past couple years, they’ve been next to impossible to get done. Several ways to do them but, basically, here is how I like to see them. Buyer has to sell their house in order to buy the seller’s house. Buyer should name the specific house in the contingency and should provide some kind of plan to demonstrate they won’t drag their feet:
Purchase is contingent on the sale of 123 Elm Street in Smyrna, TN. Home will be listed for sale within 2 days of binding agreement. Buyer will actively market the home for sale. If home is not under contract within 10 days, buyer and/or seller may cancel this contract and return earnest money in full or may extend this clause for another 10 days.
There should also be a first right of refusal built in:
Seller will continue to market the home for sale. If another offer is successfully negotiated, buyer has 48 hours to remove this contingency.
These clauses make the contingency more palatable for the seller and motivate the buyer to make it happen. We aren’t just testing the water at this stage. Of course, if for some reason the home sale contingency won’t work, there are other options–we can talk about recasting, HELOCs and home CLOSING contingencies (same as a home sale contingency except that the buyer of the new home already has their current home under contract and it just has to complete. More of a protection in case the buyer’s buyer flakes out). Some other variations of home sale contingencies include non-refundable earnest money, closing and rent backs, early occupancy (yikes).
2) Non-conventional loans–Holy smokes, during the last few years we have not been able to get many deals done with THDA, VA, RD or even (in some areas) FHA loans. Right or wrong, if a seller has 35 offers in front of them and 3 are cash and 5 are conventional with 20% or more down, they are not going to be inclined to go with a buyer that has a 100% financed loan or a subsidized loan. Now that we are normalizing a bit, all those products are very much back in play. So if you were a first time buyer that got shut out, now is the time to get back in.
3) All the other contingencies–we saw all kinds of crazy stuff in the last 3 years. People winning offers because they waived home inspections, appraisals and more. People offering THOUSANDS above list price, even when the list price was too high. Insane escalation clauses. Those things are NOT normal. We have absolutely seen a shift back to normal. Home inspections are normal again (for the most part). Appraisals are normal again. If it is super hot, people may offer above asking but they are hedging that with a normal appraisal. Friends, these are good things. We want a normal flow and normal protections for buyers AND sellers. The one thing these last few years did though is to introduce the concepts to all of us. We have the arrows in our quiver if we run into a very competitive listing that our clients HAVE to have.
I hope you enjoy these short takes on pieces of the RE market. I enjoy writing them. If my team can help you with your real estate needs, give me a call. Even if it is just to get a little check up on your current home, give me a call. You will never “bother me” with a small question. Have a great week.