by Hayden Mellsop
Realtors of Central Colorado
There is little to indicate that the current nationwide shortage of housing inventory is going to alleviate anytime soon, so it is likely that the current competition for available homes will continue.
In today’s active real estate market, bidding wars are commonplace. While multiple offers may seem to be music to a seller’s ears, there are pitfalls that both buyers and seller need to be aware of.
For sellers, the devil is in the details of each offer. While it is easy to get blinded by dollar signs, the highest bidder is not necessarily the strongest, or wisest, option. Sometimes even a cash offer is not as strong as it may appear. What other contingencies has the buyer placed in the contract that may make the highest offer not as good as it may appear?
Have any of the offers waived the inspection contingency? What about appraisal? Is the buyer prepared to make up the shortfall in any appraisal gap? Is the lender local, and therefore knowledgeable of the local market, or an out-of-state lender with little awareness of the difference between a well and a water right. What about closing versus possession – which buyer can give you the greatest flexibility to get moved out? Who is paying for what – survey, title insurance, closing costs?
One major pitfall that many sellers may not be aware of, but can potentially lead to significant liability through litigation, is committing, knowingly or unknowingly, a Fair Housing violation. Choosing one buyer over another based on the buyer’s familial status, race, religion or sexual orientation, among other criteria, can open a seller up to litigation under Federal Fair Housing rules. The less a seller knows about a specific buyer, and the more they focus solely on the contents of each offer, the safer they will be.
For buyers in a competitive market, desperation and despondency can come in equal measure. Missing out on house after house to cashed-up buyers is demoralizing, especially when one is trying to get their foot on the property ladder. Yet desperation can lead to making rash decisions that come back to bite. Buyers need to set hard price parameters and a list of “must have” criteria over which they will not compromise.
This type of hard reflection has its benefits, not only financially but also in gaining a truer understanding of what is and is not important in the grander scheme of things. Markets are cyclical, and sometimes a little patience is the most valuable commodity of all.
Pressure leads people to making mistakes, and in real estate mistakes can be expensive. Having an expert at your side to help keep emotion out of decision making can reap significant rewards far beyond what happens at the closing table.
Hayden Mellsop is a board member of the Realtors of Central Colorado.