The ongoing pandemic has fueled residential real estate sales, resulting in a declining inventory of homes and creating a market that is ideal for sellers and stressful for buyers.
Bidding above the asking price and incentivizing with cash offers has become more common this year, especially with record-low interest rates.
While buyers are typically aware of the unusual characteristics of the current market, most choose to proceed to accomplish goals of having a better home life in the midst of a pandemic.
A competitive market coupled with eager buyers and historically low interest rates is creating aggressive tactics.
Specifically, buyers across the Lehigh Valley are finding themselves in bidding wars in pursuit of new homes. Listings are active for days, if not hours, before offers begin to pile up for sellers to choose from, with an abundance of out-of-state buyers saturating the market. This has resulted in a 17.5% median sales price increase over the last year in the Lehigh Valley.
Asking prices, that, during normal times are the ceiling or fair market value, are now the starting point for many listings. This is creating situations where negative appraisal contingencies are becoming common with buyers agreeing to bring additional cash to closing to cover any financing shortfall as a result of property values, provided a cash bidder is not involved. Additionally, buyers are waiving inspection and financing contingencies and putting down significant deposits (often nonrefundable) with expedited closing timeframes. Sellers are taking full advantage of the market to create an uneven playing field, leaving buyers with little flexibility.
Buyers employing aggressive tactics to win the bidding process have a higher chance to reach an agreement, but it is still a risky proposition.
If you are seeking a new home in this market it is best to be completely aware of the factors involved. Work with a lender in advance to get a true sense of your budget to assure there are sufficient resources to offer a higher bid. Regardless of contingencies, still have an inspection completed to ascertain issues associated with the home you are purchasing – it may be a sellers’ market, but property disclosures are still required and provide buyers with a useful tool. Practice patience and keep in mind that this market will not last forever, and more homes will continue to become available.
Purchasing a home can be stressful enough during normal times but proceeding at this time can be a difficult and risky plan. Having legal counsel involved can help relieve the stress of the process and provide assistance in working through various challenges that may arise. KingSpry is happy to be that counsel, providing guidance to home buyers in all aspects of real estate transaction.