Home sellers have a right to feel optimistic, even bullish, about selling a house today: Demand is sky high, and with record-low levels of homes for sale, hordes of eager beaver buyers will do just about anything to get their hands on your place.
Overall, this is good news for home sellers, who can expect high sales prices with few (if any) strings attached. Yet although sellers are poised to ride a gravy train to the bank, the reality is that this frenzied seller’s market is causing buyers to make some desperate moves. And those can considerably complicate home transactions—not just for buyers, but sellers, too.
“The selling process is very fast-paced today in many markets, and we’re seeing buyers trying to invent new ways to rise to the top with their offer,” says John Manning, broker and owner of Re/Max On Market in Seattle. “But this can be very dangerous for both buyers and sellers, because there are legal underpinnings for just about every decision that a buyer will make. Shortcuts are never good.”
Curious about what dangers might be lurking amid all these cutthroat buyers battling to outbid one another for your house? Here are a few key things buyers are doing today that could cause problems for sellers—and how you can sidestep these potential pitfalls.
1. Homebuyers are waiving the home inspection
In the past, buyers would typically include a home inspection contingency with their offer—a safeguard where a home inspector would check out a house for problems, which might lead to more haggling for repairs before the deal is done. Today, however, a growing number of homebuyers are waiving this contingency in an effort to woo sellers in a highly competitive market with a smoother (and faster) sale.
While waiving a home inspection is certainly a substantial risk for buyers, it can be risky for sellers, too. Why?
Because if homebuyers discover an issue after they move in that requires expensive repairs, “I think it’s logical that, in many cases, one of the phone calls a buyer would make is to an attorney to find out if they can pursue the seller to recoup some of the losses,” says Manning.
This is particularly true if a home seller knew about an issue and didn’t mention it to the buyer. In fact, most states require sellers to submit a seller disclosure revealing certain problems in a home’s past, from flooding to pest infestations. Keep quiet (or just forget to mention the problems), and you could face some severe consequences.
“Even if the new homeowner may not have a case, it could cause the seller to spend money on legal fees as well as time spent trying to remediate the issue,” says Jason Gelios, a real estate agent with Community Choice Reality in Southeastern Michigan.
The fix: “Regardless of whether an inspection is happening or not, sellers must always be honest about known defects to the property that may impact value and disclose where appropriate,” says Matt Dolan, broker at Sagan Harborside Sotheby’s International Realty in Marblehead, MA.
You can also get your own seller pre-inspection to get a handle on what problems could come back to haunt you.
“Some sellers will actually commission a home inspector to do an inspection for them so that, at the very least, anything that comes up in the inspection becomes part of the seller disclosures,” says Manning. “This puts the seller on a strong footing—not only that they show good faith in hiring an inspector, but that they’ve essentially given an enhanced level of disclosure over what they could have gotten away with.”
2. Homebuyers are waiving the appraisal contingency
Another common safeguard buyers often rely on is a home appraisal contingency.
A home appraisal is where a lender evaluates how much a house is worth, and offers to loan buyers only that amount. If the appraised price ends up lower than what the buyer offered to pay you, then the buyer must make up the difference—or ask the seller to lower the price.
Today, more homebuyers are waiving their home appraisal contingency to help make their offer successfully stand out amid intense bidding wars, and to speed up the buying and closing process.
“A homebuyer waiving the appraisal can reduce the buying process by about two weeks,” says Gelios.
The problem, though, is that in hot markets where bidding wars are common, homebuyers often find that the price they’ve offered is a whole lot higher than what the appraiser says the home is worth. As a result, it becomes harder than ever for buyers to cover the difference. And this, in turn, could cause the deal to fall through.
“Waiving the appraisal can mean one of two things, and the difference between them is very important,” says Manning. “Either the buyer has ample resources, meaning they have the shortfall in the bank and no problem using it to overcome the low appraisal. Or sometimes it can be more of a reckless gamble by a desperate buyer.”
The fix: If a buyer waives the appraisal contingency but then can’t pay for the house, sellers do have one strong consolation prize: In most cases, they get to keep the buyer’s earnest money, the deposit offered upfront to show they’re serious about following through.
“If a homebuyer waives the appraisal contingency and the lender backs out of the deal for any reason, the home seller would be entitled to the earnest money deposit, provided the buyer and seller signed the contract,” says Gelios.
Earnest money is typically 1% to 2% of the total home purchase price (or $3,000 to $6,000 on a $300,000 house). But if sellers are nervous about a buyer’s buying power, they can ask for more—much more.
But keep in mind that the prospect of putting your house back on the market after a failed sale could hurt you much more than any earnest money can make up for.
“If the seller were to retain the buyer’s earnest money, they’re probably going to take a much bigger hit because the listing is going to have a bit of a stink on it,” Manning says. “There’s just a presumption, ‘Oh, the transaction failed. It must be something to do with the property.’”
As a result, before accepting an offer, make sure the buyer has financing in order and is pre-approved for a loan.
Manning says a seller’s listing agent should talk to the buyer’s agent to get a sense of a buyer’s finances and if there is enough cash to cover any financing shortfalls.
Last but not least, home sellers can also get their own home appraisal to see whether the price is in line with what buyers are offering. Or, if you end up with multiple bidders on your home, make it clear that you’re accepting backup offers so you’ve got a plan B and C on hand if you need it.
3. Homebuyers are racing to close the deal
Waiving contingencies such as home inspection or appraisal generally turbocharges the closing process. And this is supposedly good for sellers, except for one problem: What if you had hoped to buy a new home before moving out? Then you may suddenly find yourself in the same crazy seller’s market as your poor buyers—and it may take you much longer than you’d ever imagined to buy a new house.
The fix: This is one area where home sellers would be smart to add a contingency of their own to their real estate deal.
“Many home sellers are realizing that they should include a contingency in the purchase agreement that they have a certain amount of time to locate a house of their own,” Gelios says. “I’ve seen home sellers who didn’t include this, only to be faced with moving in with family members until they can find a new home.”
Due to market conditions, home sellers should request more time than usual to buy a new place. Gelios suggests adding a contingency giving you 45 days minimum to find another property.
“This gives the home seller the flexibility to look for their new home without feeling rushed by an offer on their home,” he says.
Even better, if your buyers are open to it, propose a rent-back agreement where the buyers allow you to remain in your old house and rent it from them until you’ve found a new home. This may not be ideal for your buyers’ timetable, but then again, if they really want your house, it’s one way their desperation truly can work in your favor.