Help me Understand

When offering 10% over list price, accepting the property as-is with no inspection, and paying my own buyer closing costs; how is it possible that the seller does NOT sell their house to me?!

Unfortunately, this is a common buyer question in the 2020 real estate market.  Why is this happening?  How can we secure a property?

With record low-interest rates there has been an influx of buyers in the market and the housing inventory is still low so multiple offers are often commonplace.

An unforeseen complication that 2020 has produced is “funny money” clauses.  In an effort to secure a property, escalation clauses are being used and statements of guaranteed appraisals are being made.  Many agents advise buyers to use these escalation clauses which state they will pay $1,000 more than the highest bid; however, these clauses simply create an ongoing bidding war, where the sellers can just pit the buyers up against each other over and over.

The guaranteed appraisal clause is being used to commit the buyers to the price of the escalation clause which in theory is great for the seller as the buyers have to pay the purchase price no matter what; HOWEVER what seems to be getting lost in translation is that the buyer then has to pay their down payment, closing costs and whatever this unknown additional amount of money is… this unknown additional amount of money is not discovered until the appraisal is done (which is typically 2-4 weeks after the purchase agreement has been signed) and guess what, frequently buyers do not have enough additional funds to pay the difference on what the property has appraised for versus the agreed-upon purchase price.  They need the full loan amount in order to purchase the home; if they had enough money to put more money down they would likely be using a different loan program or paying cash in the first place.  This whole scenario results in properties being sold at inflated prices and both buyers and sellers being disappointed a month or two down the line when the deal falls through because the home did not appraise for the purchase price.

So how do we address this? The Joyer Home Team has been addressing this dilemma one deal at a time; by educating all parties involved – buyers, sellers, listing agents, buyer agents, parents of clients, and more with relevant up-to-date information on how the real estate process unfolds. We advise our clients against the use of “funny money” clauses.  With over 65 years of combined knowledge in the business, we have to remind ourselves that not everyone has been through these changing markets. Though 2020 has been tough we are standing strong to help you navigate these real estate market conditions. To date we have helped over 60 families with their housing needs this year, we’d be happy to help you with yours too!