Great Market, a Few Holes Though

This market is starting to get sizzly again, but like the title above suggests, there are some holes. Most segments are seeing a little bit of a seller's advantage, but aside from the entry level sub $325k market, conditions are mostly neutral. 

There is this one anomaly however. Two story houses with 3-5 beds and 2200-2600 square feet, priced in the 400-500k range are in rather plentiful supply. Buyers actually can kick a few tires and even smack the price around a bit on a mid-priced multi-level house.

Builders are 'all in' on this price range and they are producing them in large quantities. This is dragging down the resale market in the size and price range. While the entry level, mid price single levels, and even some of the upper end ranges are smoking hot, this mid priced two story segment is favoring buyers right now.

The market is screaming for single level houses right now. But single level houses, particularly in the larger size ranges like 2000 plus SF require a larger lot to support the bigger 'footprint'. Builders are trying to stay in a price point that is affordable for enough people to support the development projects they are building. Land has become the most expensive element in our market and so a two story design allows builders to build more houses on the same amount of ground. So we are seeing this play out in the market as hundreds of new houses are coming available and many are priced in the $400-$500k range.

So if you are looking for a "value" in this market larger two story homes in that 400-500k range could be your ticket.

Earnest Money Tie Ups

Real estate transactions are nearly always offered with an earnest money deposit. Generally this is about 1% but some buyer may "sweeten" the pot with high amounts, particularly when paying in cash or using a large down payment loan. The seller likes the larger earnest money because it shows serious intent by the buyer. The earnest money is typically held by a neutral third party often the title/escrow firm handling the transaction.

The buyer usually has some contingencies associated with their offer. A common contingencies are  inspection and loan. The inspection contingency states that the buyer will buy the house provided they are subjectively satisfied with the results of a professional inspection.This is typically a short period of 7-10 days in which the buyer can effectively exit the transaction and is entitled to a refund of the earnest money. The more common outcome of an inspection period is some form of negotiated agreement for the seller to make repairs.

The second contingency is based on the successful loan commitment from a lender. This one is not subjective but requires a legitimate contingent event to occur in order for the buyer to be eligible for an earnest money refund. If due to no fault of the buyer the lender is unable to fund the loan the buyer would exercise the right to terminate the agreement and is entitled to a refund of earnest money. No fault of buyer is objective and could be an arguable status. Generally a buyer must act in good faith to get the loan, this means submitting all documents to lender in a timely manner, following lender guidelines regarding credit. So if a buyer voluntarily quits his job, or goes out and buys a new car before closing, the buyer is not entitled to his earnest money back if the loan fails. But if an underwriter decides that their is something in the file the missed when approving the loan initially, this is not the fault of the buyer so long as they acted in good faith. The buyer is entitled to a refund of the earnest money.

A failure to close late in the process often is irritating to all parties involved. These are the situations that can lead to disputes over earnest money. The title company will not release the earnest money to either party until all parties agree. Buyers need to be aware that once they release the inspection contingency their earnest money is at risk. Even if they are entitled to receive it back a seller can stonewall for a fair amount of time tying up that money. This can be frustrating for buyers and agents alike. Buyers should be cautious about putting up excessive amounts of earnest money beyond the typical 1% as there is no guarantee that money will be promptly returned or in some cases returned at all. Buyers or sellers seeking to capture the earnest money in a dispute are always well advised to seek legal counsel before digging in for any kind of fight. Real Estate agents and Title Officers are usually NOT lawyers and must be careful not to practice law or give legal advice outside the scope of their very limited expertise.

Cash means CASH!

Last year I wrote a post about the rise in prevalence of cash offers and noted that there was a trend towards offers that claimed to be cash offers but really were not CASH.

Here is that post from last year:

"There has been a large number of cash offers being made over the last few years. I have definitely felt an uptick in my business and other Realtors® have expressed a similar vibe as well. But buyers making cash offers need to be very clear about what a CASH offer is. I ask my buyers that want to offer cash on a house, right up front. Do you have the cash on hand right now? That is, is the cash in the bank and accessible immediately. That my friends is the DEFINITION of cash. It is immediately accessible money. Some buyers are planning on drawing an equity line, or taking a loan on another property, or selling another asset. This is not cash until those transactions are complete.

A buyer making a cash offer that does not have the cash already liquid is in jeopardy of default should the source of the "cash" be delayed or for some reason made unavailable. Even more dangerous is the fact that a cash offer made without liquid cash on hand could be litigated by the seller as civil fraud should the deal fall apart. Cash is C A S H, not "I'm taking a line of credit," or "my uncle is lending me the cash." Buyers need to disclose to the seller the source of the cash if it is not already liquid and sitting in the bank. It is fine and well to make an all cash offer predicated on the arrival of cash from another transaction, be it a sale of another property, or loan, or gift, whatever the case is; but when that cash is on the way rather than in the bank, disclose, disclose, disclose.

Buyers in a tight market are often trying to make their offer stand out in front of other offers, but they must be cautious not to put themselves in legal trouble when making a soft cash offer. Buyers that want to play with the "big fish" in the hard cash arena, need to take the loan, sell the asset, or grab the gift, etc. BEFORE making the offer."