OT: House Offer Accepted. What A Crazy Market!

[DerbyDad03]

What a crazy housing market this is! My #1 son and his GF just found out that their offer has been accepted.

Here is how houses are being bought these days?

First, I should note that the submission period for offers was the 48 hours after the house hit the market. This was one of those listings where all offers would be reviewed at the same time and the sellers would choose the one that they liked the best.

Since my son and his GF are relocating to a different state, they haven?t even seen the house in person. Just pictures, a video tour and their agent?s assurance that the house was listed at a great price, way under what she expected it to sell for. (She was right) They submitted their offer within a few hours of the house being listed. There was a total of 12 offers submitted in that 48 hour period.

They submitted an offer at full asking price ($370K), no contingencies. The offer included an escalation clause. The escalation clause would automatically increase their offer to $1000 more than the highest offer submitted, but not to exceed $410K. They also included an "appraisal clause" which stated that they would give the sellers up to $15K above the appraised value, not to exceed $425K.

Their offer was accepted, not just based on the offer price, but also based on the appraisal clause. Another offer also had an escalation clause that maxed out at $410K, but the appraisal clause was only $13K above the appraisal value, $2K less than their offer. That was close!

So they may pay as much as $425K, but they may pay less than the $410K if the appraisal is low ? assuming it?s not so low that the seller backs out. Their agent is sure that the appraised value won?t be low enough for that to happen. The seller is moving out of town and needs to get the house sold, thus the comparatively low asking price.

One other clause was a 15 day due-diligence clause, which was accepted. Even though the offer was ?as-is? and not contingent on an inspection, they are still going to have one done and can use that to negotiate repairs or get out of the contract if the seller?s disclosure form is not accurate. They are hoping that at least one of them can be present for the inspection.

If the house appraises at the $410K level, they will end up paying $55K (15%) over the listing price. Holy crap!

[Ed Pawlowski]

Crazy! My neighbor that sold his house the day after listing bought a house unseen too. The escalation clauses were unheard of when I was buying but seems to have been good for them.

I bought here 2 1/2 years ago. If I bought today my old house would have sold for more but this house would be another 5k above the difference.

[Bill]

That sounds like a system ready to be "gamed" --much like the people who bid on their own stuff on ebay. Both the buyer's and the seller's agents have an incentive to sell at a higher price. I'm not saying anything shady might happen, but I don't like it! : ) If they want to auction the house then (IMO, they should) auction it in the "light of day"!

[Bill]

I'll assume my previous message has been read. Color my cynical but all I have to say is "what a coincidence!". That said, I congratulate the buyers on their new home. The way property is appreciating, it will surely be a great investment in the long run, and you can live in it! :)

[Ed Pawlowski]

I wonder in 3 to 5 years if the house price today will still be a good investment when interest rates are back up.

[Dave Marulli]

Yes, it could be shady, but part of the process is that the seller has to show them the offer (or at least a picture thereof) that triggered the escalation clause.

Of course, as I joked to my son "Oh, you mean the offer that the seller's sister submitted right after they had read yours?" ;-)

The California Association of Realtors says this in a FAQ:

"Should the buyer include a provision that allows for verification of the next highest competing offer?

Yes. Since the buyer is making an offer dependent upon the offers of other buyers, it makes sense that the buyer should be able to verify that those other offers were in fact bona fide offers. The buyer may include language such as: "Seller shall, upon acceptance, provide buyer with a copy of the highest offer received. Buyer has a right to contact that prospective purchaser making that offer, or his or her agent, to verify the validity of that offer and that the other offer is in fact a bona fide offer."

While still ripe for gaming, once you start getting third parties (especially licensed agents) involved in the scheme things can get trickier for the schemers.

This was for a house in Indiana. My #2 son is an RE agent in Nevada. Escalation clauses are not legal there. I'm not sure of Nevada's exact reason, but from my reading it appears that some jurisdictions don't allow escalation clauses in a real estate offer because there is no firm dollar offer being made.

[DerbyDad03]

Yes, it could be shady, but part of the process is that the seller has to show them the offer (or at least a picture thereof) that triggered the escalation clause.

Of course, as I joked to my son "Oh, you mean the offer that the seller's sister submitted right after they had read yours?" ;-)

The California Association of Realtors says this in a FAQ:

"Should the buyer include a provision that allows for verification of the next highest competing offer?

Yes. Since the buyer is making an offer dependent upon the offers of other buyers, it makes sense that the buyer should be able to verify that those other offers were in fact bona fide offers. The buyer may include language such as: "Seller shall, upon acceptance, provide buyer with a copy of the highest offer received. Buyer has a right to contact that prospective purchaser making that offer, or his or her agent, to verify the validity of that offer and that the other offer is in fact a bona fide offer."

While still ripe for gaming, once you start getting third parties (especially licensed agents) involved in the scheme things can get trickier for the schemers.

This was for a house in Indiana. My #2 son is an RE agent in Nevada. Escalation clauses are not legal there. I'm not sure of Nevada's exact reason, but from my reading it appears that some jurisdictions don't allow escalation clauses in a real estate offer because there is no firm dollar offer being made.

[Bill]

I think it will likely, at the very least, hold its value appreciably better than dollars in CDs. It has to be true that prices can't rise above what people are able to pay, but in view of that it's remarkable how housing prices skyrocketed in places like California....location, location, location! : )

[Bill]

I'm top-posting.

Thank you for providing the additional details. It is an interesting matter. I would like to see exactly what is at stake for a "shady" real estate agent. With an "escalating clause", the buyer is saying that they are willing to pay a certain price, and the real estate agents facilitate the transaction. It could be very difficult to pin down the crime, and ironically, even to draw much interest in it by those who could enforce the rules. It appears that "escalating clauses" are good for the industry in that they generate higher commissions. Anyhow, thanks again DerbyDad for sharing the story!

[Bill]

In other words, they came to the conclusion, probably through experience, that it was too easy to generate a spurious offer if one was needed. I like the quote: "Pop always said, Trust everyone, but always count your change!". My dad didn't say that, but I live as though he did.

[DerbyDad03]

Actually, they are legal in Nevada, at least as of July 2020. However, some agents, specifically REALTORS, are strongly warned against employing the practice, including a threat of a $10K fine.

However, the "prohibition" is not for the reason you state. It's actually about some buyers ability to use the clause vs. those that can't, making it "unfair" to those that can't. I'm not sure I agree with the reason. Just because I am willing to pay more than you, why should I be forced to offer the higher amount at the outset? Why can't I try to get the house for a lower amount?

[Clare Snyder]

Never heard of them up here either.You need to decide how badly you want the house and bif accordingly. If a house goes on the market at $450000 and coparables are selling at $480000 and up you KNOW there will be competing bids so you decide how much over asking the others will go and bid higher. You might end up paying $100 over the next guy to get it, or $100000. Here in Kitchener Waterloo $300000 over asking is not unheard of. Nor is 45 offers on a property.

It's strange - a house might be listed at $700000 and be on the market for 3 weeks before they get an offer that meets asking price - but list the house at $500,000 and in 3 days you have 20 or more offers and end up getting $800000. It's pretty much a given that if a price looks too good to be true it IS - and the listing price has little relationship to what the selling price will be.

We bought 39 years ago for $67700. We looked at moving about 4 years ago and $300000 was optimistic - to be charitable. Two years ago we asked a realtor for a market appraisal and they said it was really difficult but they wouldn't recommend accepting under $500000. Today comparables are listing at $650,000 and selling for $700,000 and up !!!!!.

Problem with selling is where do you go for less???

[Clare Snyder]

I'm betting there will be a lot of people with upside down mortgages in 5 to 10 years in several areas of the country. Our area is less likely to see it than many others due to our resiliant economy - but %7 would definitely be painfull for MANY buyers - even here.

[hubops]

... move to Milverton ! :-)

John T.

[Clare Snyder]

Left there in '54. You remember Whitney Farms?? Dairy and chicken operation out on Perth road 61 I believe? 3rd farm up from the old railroad tracks? Dad was herd manager there.

[krw]

The last two houses we've bought didn't allow us to be present at inspection. One was new, so I wasn't worried but this one concerned me a bit (foreclosure).

I'm told that this is a common strategy in a hot market (are there any that aren't now?). List low to get as much interest as possible and wait for the bidding war. It's more of an auction with a reserve than a normal sale.

[krw]

The penalty should be loss of license.

I just love today's "unfair" BS. Is it "fair" for the seller to get less than he possibly can? Do they give out participation trophies too? Maybe the loser would get Section-8 housing.

[hubops]

Before my time. I was raised near Galt. My Dad - Hespeler - his parents Macton & Linwood. John T.

[krw]

That's about a 3-1/2% real gain. 6%-2.5% inflation. Discounting the fact that it kept you dry for four decades, it's not a fantastic return.

Prezactly. I can sure sell but I don't want to live in the street, wad of cash or no.

[krw]

Bubbles happen. The only difference between now and 2007 is a few interest points. At 2% interest _maybe_ there will be fewer foreclosures. ...but it'll be a good time to have cash.