Given the current competitive state of the housing market, buyers and sellers are finding themselves in unique positions when it comes time to place offers and make counteroffers on homes. Many markets have been marred by extremely low inventory, which has been a major factor for home buyers seeking out that perfect home. When that home is found, desperate buyers are making risky offers and being countered with even riskier proposals as sellers are finding themselves in the driver’s seat.
Described below are a few of the issues that come out of the woodwork in such a market that should make buyers wary of involving themselves in such risky real estate practices.
One very common way for buyers to ensure that their offer is the very highest, and more likely the best for the buyer, is to place an escalation clause, or sharp bid, in the offer. This type of offer offers a predetermined sum of money more than the next highest offer, usually with the additional provision that the seller has to show the next highest offer to the buyer in order to maintain honest practices.
The buyer is capable of putting a cap on the the offer, but this practice is still rather risky because the buyer can end up agreeing to pay more than the home is worth. In order to drive up the price of their homes, some sellers have been known accept the offer with the sharp bid only to counteroffer the price the home would be with the escalation clause, a seedy practice that has questionable legality.
With homes being such hot commodities lately, it is not uncommon that sellers will get good offers, even when in counteroffer negotiations with another potential buyer. Home buyers need to be aware that sellers have the right to revoke counteroffers at any time prior to acceptance, which can get tricky for buyers who like to think on their decisions.
Given this fact, buyers need to know that the clock is ticking the second the counteroffer is made known to them and a seller can only revoke an offer by formally doing so using the California Association of REALTORS® official “Withdrawal of Offer” form.
In order to make a transaction flow more smoothly without offering more money, many buyers will waive contingencies on appraisals, loans or inspections. This is a risky practice because the buyer could end up paying for more than the home is appraised at or for structural problems that are found at inspection but flying under the seller’s radar.
The state of California tries to protect buyers in these situations by enforcing full disclosure of problems with the house to the buyer prior to the offer even being made. If a buyer is unable to close in a no-contingency contract, they will lost earnest money in the deposit or will have to fight to get it back, making the process of buying a home even more drawn out and difficult.