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Monday, March 8, 2021

Market moves from frustrating to ridiculous…


The real estate market in this area of Southeastern Michigan has moved from being frustrating to buyer into ridiculous. Too much money is chasing too few houses and the result is a very crazy and dangerous market where buyers are throwing caution and common sense to the wind.

Ove this past weekend I showed a houset some buyers tht had just come on the market on Friday. By Sunday evening, when we were finally able to get it there had been over 40 showings and there were at least 20 offers already in. That’s just crazy. But the scary part is how many of those offers were made without any inspection contingency and with built-in escalation clauses and appraisal guarantees.

Buying a house, especially and older one like the one I visited with clients without doing an inspection is just dumb.  You don’t know what costly repairs may be waiting, hidden behind that latest cosmetic fix-up. An building in commitments to increase one’s price by some amount over whatever the highest bid is can be a formulae for disaster if there are multiple of those type bids on the same property. It’s like a giant game of financial chicken that onbe can get caught up in until it is too late and you have bought a way overpriced house.

The appraisal guarantee clauses make more sense buy still carry the risk of being in a negative equity position the day that you close on the house. Basically you  are saying that you will bring extra money to the closing beyond what the bank will finance. If you put a reasonable cap on that commitment it might be OK.

Other “creative” and desperate offer terms that I’ve heard about recently include giving the seller free post-closing occupancy or extended post-closing occupancy at a reduced rate and even offering to pay some of the seller’s costs.

A concerning point in these examples is that there does not appear to be an end in sight. The real estate market at the lowest listed homes inventory that we have seen in decades and the impact of the COVID-19 pandemic is being felt in much lower than average new-home starts as well as listings of existing homes. People are just not building or moving like they did in pre-COVID days. It feeds upon itself to a certain extent, since would-be sellers can’t see where they might move to in this tight market.

It may also help if the buyer is more flexible in what they are using for their criteria. For instance, one might look at houses that need a little work, rather than only looking at move-in-ready homes. The key there it to be cautious that the work needed is mainly cosmetic and does not involve any major remodeling expense (at least not initially). Buying  a house that needs 2 or 3 bathrooms redone and a total kitchen remodel is basically buying into a $70-100,000 debt, on top of whatever high price you might be paying in this market.  That’s a whole different thing than buying into a house that needs painting inside or maybe has wallpaper that need to be taken down.

So, what s one to do in this type of market? I tis more important that ever that would be buyers practice the three P’s – Patience, Persistence and Perseverance – and that they not abandon common sense out of a sense of desperation. Just because the market has temporarily become ridiculous doesn’t mean that you have to become that too.

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