Way Out On A Limb

Yet another aspect of the insanity of the current marketplace and one that’s becoming more and more prevalent is the practice of dispensing with any and all contingencies in order to get a home in competition. In the last few weeks especially it seems to quickly becoming the norm. Honestly…I hate the idea. Talk about going way out on a limb! First of all, in most of these circumstances there are already inspections done so accepting the property in “As Is” condition and waiving a contingency to do inspections is not really that dramatic. You can, of course, inspect all you want…you just don’t have a contingency to negotiate further over what you might discover. You also can’t back out over these discoveries either.

The long limb really applies to the appraisal and loan contingencies. Since this is a new phenomenon, the values that are coming in on appraisals are typically above the comparable sales for any time prior to mid February 2012. I wrote an offer on a cute townhouse in Palo Alto that was listed for $825,000 and ended up selling someplace north of $900,000. The last unit that sold over there was this same place…and it went for $765,000 in 2010. The winning offer was not only over 900k but had no contingencies of any kind. In essence the buyers are saying “Don’t worry about the appraisal, if it doesn’t come in we’ll go ahead and make up the difference in cash to make this deal close.” This can be pretty risky stuff. You’re really guaranteeing the sale for the seller to get them to take your offer.

It’s not just happening in Palo Alto either. The house at 354 Bluefish in Foster City got a non contingent offer as well. There’s been several others so far this year in FC that have experienced that too…and it looks like that’s what is coming in the future as the norm when writing offers. I really hope it doesn’t. If you don’t have 30% down you’re at risk. I actually had an agent tell me today that she received an offer on a Million dollar plus house where an agent presenting an offer with 40% down apologized for not writing an all cash offer. “I’m really sorry, but my clients need a loan” she heard the agent say. Amazing!

Comments

  1. Michelle says:

    Wow! If I remember correctly, Bluefish was actually on the market last year too, right? Like you said, you couldn’t give houses away last December.

  2. Jim Minkey says:

    No, that was actually a different house on Bluefish. Oddly enough, the same floorplan on Trysail was on the market for 129 days last year and sold for $890,000. What an amazing difference in just a few months…when this house closes it will be the most money ever spent for this floorplan in FC

  3. It’s nice to find another broker who shares my same concern for buyers waiving their loan and appraisal contingencies. The market is heating up here in the Phoenix/Scottsdale area, too, but I thought we all learned a valuable lesson about real estate bubbles in 2007 and I don’t want to see us all fall back into the same bad habits that cause them.

  4. Jim Minkey says:

    Here’s the dilemma…almost every offer I’ve been involved with in the last few weeks the winning bid had no contingencies. We’re fast becoming a market where that’s what you have to do to get accepted. If you don’t have at least 30% down you’re in trouble. I wish it wasn’t like that!

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