April Reporting Roundup: “Risky Behavior” Edition

It’s back! Time for another reporting roundup, where you can read my wry commentary about the news instead of subjecting yourself to boring rehashes of the NWMLS press release (or in addition to, if that’s what floats your boat).

To kick things off, here’s an excerpt from the NWMLS press release:

Housing inventory improves, but market still favors sellers

“Our market is near historically low levels of absorption. This has things weighted in sellers’ favor,” remarked Ken Anderson, president/owner of Coldwell Banker Evergreen Olympic Realty and a former Northwest MLS director. “Successful buyers are working closely with their brokers to study the market, choose great lenders, and make smart choices in composing compelling but not careless offers,” he added.

J. Lennox Scott, chairman and CEO of John L. Scott, Inc. described April as “another grand slam month for housing,” adding, “The market is more intense than a year ago. We are still seeing 80 percent of the homes coming on the market sell within the first 30 days.”

Scott said “virtually all new listings are selling, many with multiple offers in all the market areas in King, Snohomish, Pierce and Kitsap counties in the price ranges where 90 percent of the sales activity is happening.” Heavy open house traffic and multiple offer situations are keeping brokers extremely busy, he added.

Brokers believe the frenzied market is altering some buyers’ behavior – and not all of it is prudent, they suggest.

Diedre Haines, a former chairman of the Northwest MLS board of directors, reports there are growing signs “of buyers’ fatigue, and game-playing at its finest.” Pre-inspections are being conducted as the “new normal,” and/or buyers are waiving many of their rights with regard to inspections, title reviews, neighborhood reviews, and financing contingences, according to Haines, Coldwell Banker Bain’s principal managing broker for South Snohomish County.

“In my opinion, this is risky behavior for both buyers and sellers,” Haines commented, adding, “Buyers need to perform their due diligence investigations, and sellers should be cautioned about the wisdom, or lack thereof, in thinking these waivers strengthen the offer, are good for them, or that they create a ‘no hassle’ quick-close transaction.” She urged parties to a transaction to think through the potential consequences of taking such risks.

Wow, a home salesperson urging prudence and they’re being quoted in the NWMLS press release? I’m floored.

Read on for my take on this month’s local news reports.

Seattle Times

Blanca Torres: Home prices charge ahead, driving some buyers farther afield

The list of cities some might call suburbs of Seattle now stretches to places like North Bend, Poulsbo and Cle Elum. More homebuyers are willing to trade longer commutes to buy a house they can afford or for more space and features.

Some would-be buyers are looking at such alternatives as a lack of available homes on the market drives up prices in the hot housing markets of Seattle and the Eastside.

Multiple bids and bidding far above the asking price are the norm in hot submarkets, leaving some prospective buyers demoralized. That is prompting some buyers to consider moving to another part of the region.

“You see Seattle fatigue, where you have buyers who have been outbid many times or have seen homes go well above asking prices,” said Stacie Gall, a Redfin agent based in Bainbridge Island.

“A lot of people are being willing to move out of their comfort zone and are finding that Seattle and the Eastside are becoming too expensive,” said Shane Raff, a real-estate agent with John L. Scott. “People are just getting priced out of the market and there’s nowhere for them to go.”

I don’t know if this is a real trend, but if it is, it’s worrisome. It’s this same kind of “buy a home no matter what” mindset that contributed to the frenzy and eventual bubble burst ten years ago.

Everett Herald Business Journal

Jim Davis: More homes land on market in county, but still too few

More homes hit the market in Snohomish County during April, but inventories remain far below what was available a year ago, the Northwest Multiple Listing Service says.

It’s part of a trend that’s been going on for months: There just aren’t enough homes available for the number of active buyers in the area.

It was nice to get a local article in the Everett Herald for the first time in a long time, but unfortunately the article was little more than window dressing on the NWMLS press release.

Puget Sound Business Journal

Marc Stiles: New home listings up, but not enough to cool down region’s blistering market

Pending home sales in the Puget Sound region’s four-county area are at a near record, more owners are putting their houses on the market, and price increases for single-family homes have started to slow down some.

Yet prices still are climbing, and it remains a seller’s market, especially if you’re unloading a condo.

The temperature of the condo market remains torrid, especially in King and Kitsap counties. In King, where inventory fell nearly 27 percent, the median sales price was up 19 percent. Downtown Seattle condo prices jumped 37 percent even as inventory remained about the same. In Kitsap, condo prices soared nearly 62 percent, though the number is based on just 16 sales. The Pierce County median price increased 13 percent and Snohomish County’s went up 3.6 percent.

Not a lot of depth to this article, but those are at least some interesting observations about the condo market. I’ll have to see if there’s enough data to see any interesting trends in condos lately.

Tacoma News Tribune

Craig Sailor: Pierce County still a real estate bargain compared with King

A tight inventory of homes continues to drive up prices in King and Pierce counties.

But that’s only one of the direct factors affecting affordability.

Land regulations, development costs, job growth and labor shortages also are raising prices. And builders are turning toward higher-end projects where those costs can be more easily worked in. The result is less affordable and entry-level housing.

That’s the conclusion of Robert Dietz, a national economist for the National Association of Home Builders, and Aaron Terrazas, a senior economist for housing data company Zillow.

The pair spoke early Wednesday at the annual Master Builder’s Association housing forum in Puyallup.

This article technically isn’t about the latest NWMLS data, but it is interesting and worth a read. You’re obviously going to get a very pro-buying-always message from an event put on by a homebuilder organization, but it’s interesting to see the latest spin they’re putting on it and the kinds of underlying factors they’re looking into.

The Olympian

Rolf Boone: Sellers had the advantage in South Sound housing markets in April

South Sound home sellers remained in the catbird’s seat in April as a lack of inventory and rising prices continued to favor them, according to Northwest Multiple Listing Service data released Thursday.

But if prospective buyers can’t find the houses they want or get outbid, guess what happens? Sales slow. That was the case in Pierce County, at least, as sales were essentially flat, rising only 1 percent last month compared with April 2015.

Thurston County has had a little more breathing room, but not much. In April, months of inventory was 2.06 months, the data show.

This one is the article covering the NWMLS numbers for the Tacoma and Olympia area. Not a lot of meat on the bone here, but frankly there’s not a lot of new and interesting things to say about the market right now.

(Blanca Torres, Seattle Times, 2016-05-05)
(Jim Davis, Everett Herald, 2016-05-05)
(Marc Stiles, Puget Sound Business Journal, 2016-05-05)
(Craig Sailor, Tacoma News Tribune, 2016-05-04)
(Rolf Boone, Tacoma News Tribune, 2016-05-05)


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

45 comments:

  1. 1
    The Tim says:

    Well that’s odd and annoying. I thought I had published this yesterday afternoon, then this morning I go into the dashboard and there it is, still sitting as a draft. Oh well. Here you go anyway.

  2. 2

    The issue on the inspections is that a seller waiving an inspection is probably bad for both the buyer and the seller. Way too many agents don’t understand that or maybe don’t care! I even lost out in a bidding war recently where during the negotiations the other buyer waived their inspection and the listing agent didn’t tell me prior to accepting the other offer. That agent was extremely experienced and I was shocked that he thought that was better for his client. I always advise my seller clients of the risk of accepting an offer without an inspection contingency.

    One thing I saw recently that was particularly clever in this area was a buyer’s agent made an offer containing two Form 35s, allowing the seller to pick the form either with inspection or waived inspection. That was still risky for the buyer in that the seller could accept a waived inspection, but it at least allowed the waiver of the inspection to possibly cause the seller to accept their offer rather than accept another offer. As it turned out my client accepted the offer with the buyer inspection rights intact.

  3. 3
    ess says:

    All very exciting news.

    But in all the excitement, I have noticed more and more people obtaining “pre-inspections”. I understand some houses have multiple “pre-inspections”. Good business for some, but frustrating for those who pay and don’t get the house they had bid on.

    Question for those in the know:

    How much are these “pre-inspections, and do they differ from regular inspections in any way? Are they quicker and less expensive and focused on only major problems, with the understanding that often the house that is pre inspected may not be obtained?

  4. 4

    RE: ess @ 3 – This is a video from Washington Realtors on the topic. https://www.youtube.com/watch?v=lX_iSjmEUrM

    On our listings we typically suggest sellers not allow pre-inspections because it deters offers and presents other potential problems. As to the deterring offers I’ve yet to have a client show any interest in a house where a pre-inspection was being conducted. In one case I thought it was clearly the best house of the day, but the clients didn’t like it for no particular expressed reason. In another case clients who have wanted to go into every house no matter what, and linger even if they didn’t like it, didn’t want to go into a house where a pre-inspection was being conducted.

  5. 5
    Mike says:

    Wow, a home salesperson urging prudence and they’re being quoted in the NWMLS press release? I’m floored.

    Sure, why not? The homes will sell regardless.

  6. 6
    ess says:

    RE: Kary L. Krismer @ 4

    Thanks for the info, Kary

  7. 7
    Buyer says:

    By Kary L. Krismer @ 2:

    The issue on the inspections is that a seller waiving an inspection is probably bad for both the buyer and the seller. Way too many agents don’t understand that or maybe don’t care! I even lost out in a bidding war recently where during the negotiations the other buyer waived their inspection and the listing agent didn’t tell me prior to accepting the other offer. That agent was extremely experienced and I was shocked that he thought that was better for his client. I always advise my seller clients of the risk of accepting an offer without an inspection contingency.

    One thing I saw recently that was particularly clever in this area was a buyer’s agent made an offer containing two Form 35s, allowing the seller to pick the form either with inspection or waived inspection. That was still risky for the buyer in that the seller could accept a waived inspection, but it at least allowed the waiver of the inspection to possibly cause the seller to accept their offer rather than accept another offer. As it turned out my client accepted the offer with the buyer inspection rights intact.

    Why is it risky for the seller to accept an offer with inspection contingency waived? I can see the risk for the buyer … but what about the seller?

  8. 8

    RE: Buyer @ 7 – Because they are more likely to be sued–or even worse, sued and lose. A seller who accepts an offer with a waived inspection after reading that case is either incredibly stupid or not at all risk averse.

    https://www.courts.wa.gov/opinions/pdf/672428.pdf

    Note that is only a court of appeals case, but there was also the Alejendre v. Bull Supreme Court decision on septic tanks which would also support that result. That was the case the statewide forms drafters over-reacted to, creating a bunch of nonsense language in the standard purchase and sale agreement.

  9. 9
    Eile says:

    RE: Kary L. Krismer @ 2

    What’she the risk for the seller for accepting offer without an inspection and cash offer. I see none, I get my money and run.

  10. 10
  11. 11
    Emily says:

    RE: ess @ 3

    In our experience, pre-inspections are about $200 less, but that’s because it’s entirely verbal. Basically, we walked around with the inspector and took diligent notes.

  12. 12

    RE: Emily @ 11 – The video I linked addresses verbal inspections, but I’m not sure it makes the point that a verbal inspection might not protect the seller as much. How would a seller prove what the buyer’s inspection showed?

  13. 13
    ESS says:

    RE: Emily @ 11

    Thanks Emily – between the information you and Kary supplied, I have learned all sorts of important things today!
    Kary – that video was like attending a mini CLE!

  14. 14

    RE: Kary L. Krismer @ 2
    My 1999 Seattle Home Inspection Usefulness and Uselessness

    The inspection report nailed down foundation pilings on modules much more earthquake proof than stick house cement. The pilings are bad in tornadoes and good in earthquakes. Pilings allow the earthquake “wave” to bend through the flexible base lumber, rather than crack the cement foundation. My inspection verbally assured me my foundation would easily handle a 7.0, no problem….

    The bad yin/yang of the inspection, it missed an obvious SERIOUS code violation….my house had a Riches Stove installed without state inspection [theoretically voiding the real estate contract BTW]….$1000 fine BTW to the contractor installing the stove….the inspection placard was missing from the exterior panel, the inspector should have found this, but did not.

    Sooooo….inspections are both useful and useless.

    My Kansas City 2014 foreclosed home was inspected by me before purchase. Code enforcement later found dead trees and trim lumber needed to pass code later. The Code improvements were about $4000 after the $27,000 [with closing costs]….the money I would have spent for inspection was spent on the Code improvements instead.

  15. 15

    By ESS @ 13:

    Kary – that video was like attending a mini CLE!

    Annie is very good at what she does. I agree with about 99% of the things she says.

  16. 16
    Anonymous Coward says:

    I thought the only difference between a pre-inspection and a normal inspection is that the pre-inspection is done prior to writing an offer and a normal inspection is done after an offer is accepted. We did a pre-inspection when we bought in 2014 with a full written report provided within 24 hours. (House listed Friday, we toured that afternoon, did an inspection on Saturday, a sewer scope on Sunday afternoon, and submitted the offer Sunday evening.) We didn’t save any money and we were able to inspect all the standard items. I thought the whole point of the pre-inspection was to allow the buyer to submit a “final” offer upfront where the seller doesn’t have to worry about a complete re-negotiation of the price once the inspection occurs. What am I missing here?

  17. 17

    RE: Anonymous Coward @ 16

    A pre-inspection can be a full inspection…or not. It has more to do with the cost. Often people pay $200 (or more) less for a pre-inspection and are only looking for “big-ticket” items presented verbally – no written report. Sometimes a buyer may pay for a full inspection on the first one but if they are dealing with losing in multiple offers time and again, they rethink the cost of that. Some start with the cheaper version so that they can do three for the price of one if needed in competitive markets.

    To your question: ” I thought the whole point of the pre-inspection was to allow the buyer to submit a “final” offer upfront where the seller doesn’t have to worry about a complete re-negotiation of the price once the inspection occurs. What am I missing here?”

    Often people misunderstand the difference between doing an inspection and holding the seller accountable (right to negotiate/right to cancel) for the result of that inspection. EVERY buyer should do a full inspection once they buy the house or know they are going to buy the house. What you are missing is whether or not the seller is involved in the result. You can do a mini “big ticket items only” pre-inspection to be followed up with a full inspection once you win in multiple offers (recommended) so that you know what you are buying and have a punch list of items that you, the buyer, need to address sooner or later.

    While you lose the right to cancel or ask the seller to fix things, and many say then why bother doing a full inspection, you get to choose whether to close or lose your Earnest Money. In multiple offers you are expected to “suck up” some issues you might ask the seller to do if it were a buyer’s market. Fixing a $3 broken window lock on a wood frame window. Cleaning the gutters. Trimming a tree away from the roof. Basically low cost or ongoing maintenance items. But should you do a full and thorough inspection by a more qualified inspector (sometimes the pre-inspector is not the best in town due to time constraints) and that more qualified inspector finds a really big problem, you can opt to not buy it and forfeit your Earnest Money (assuming you checked that box in the offer) vs closing and living with the problem.

    “having an inspection” is not synonymous with “having a legal out to cancel on inspection”. Everyone should DO an inspection. I have done a few the day after closing. Not ideal but they all worked out well. There weren’t any surprises. I won’t do that for a 1905 house in Seattle but not uncommon for a 2004 house in Redmond. You can “waive” inspection in the offer but reserve the right to DO an inspection “for buyer’s information only” prior to closing. You can cancel…you just risk losing your Earnest Money. Never had a buyer lose their Earnest Money doing it that way and it provides more peace of mind.

    No inspection contingency and No inspection performed prior to closing or immediately following closing are not the same things.

  18. 18
    Another Anonymous Coward says:

    RE: Ardell DellaLoggia @ 17

    To all buyers – do not listen to advice like this. Remember that your broker is not your friend or your fiduciary.

    If a seller is allowing or encouraging pre-inspections, walk away from that house. Do not tour it and do not bid on it.

    A home inspection with a contingency baked into the contract is the only way to protect yourself. If you follow the advice above, you’re looking at $200 just for the “privilege” of making an offer, and 100% of your earnest money at risk if issues are found in the inspection.

    Contrary to the hand-waving advice above – gutters, trees, and broken window locks are NOT what you should be thinking about. Code issues, mold, rot, water management, pests, leaks, HVAC issues, and all the shortcuts the builder and subsequent contractors may have taken should be on your mind for the home inspection.

    If greedy agents&sellers along with the frantic buyers continue to reduce the role of inspections in the sale process, the quality of homes in our area will continue to decline. The threat of a proper home inspection one day down the line is the only incentive to keep many of these sellers responsible when it comes to doing their home maintenance and improvements.

    Also, do not buy into or perpetuate the seller’s collective sob-story about those “awful” buyers using the inspection contingency to try to “re-negotiate” after the contract is signed. If the seller did their maintenance (and their own inspection when they bought the house), they have nothing to worry about. If they’ve done their disclosures properly, they have nothing to worry about. Anyway, when evaluating offers, sellers can pretty easily spot a potential buyer who might try to negotiate the price down later. Furthermore, tiny inspection issues are not likely to kill a deal in a seller’s market. The only remaining rationale for this argument is — greedy sellers trying to offload the risk of their moldy creaky dangerous houses onto the buyers.

  19. 19

    By Ardell DellaLoggia @ 17:

    Often people misunderstand the difference between doing an inspection and holding the seller accountable (right to negotiate/right to cancel) for the result of that inspection. EVERY buyer should do a full inspection once they buy the house or know they are going to buy the house. What you are missing is whether or not the seller is involved in the result. You can do a mini “big ticket items only” pre-inspection to be followed up with a full inspection once you win in multiple offers (recommended) so that you know what you are buying and have a punch list of items that you, the buyer, need to address sooner or later.

    That would require the seller’s permission–as does doing a pre-inspection. Absent rights in the contract a buyer doesn’t have the right to enter the house again even once after mutual acceptance.

  20. 20
    Shawn says:

    Kary, what are the legal implications when the seller’s agent posts the inspection report for everyone to see? Wouldn’t that save everyone time and money? I’ve seen that a couple of times for property listings in Bellevue.

  21. 21
    AverageJoe says:

    RE: The Tim @ 1 – Is the affordability analysis also sitting as a draft?

  22. 22

    RE: Shawn @ 19 – I’m not going to answer what all the possible legal implications of that are, but here are a few initial thoughts.

    First, we don’t recommend sellers do pre-sale inspections, but if they do one then making the inspection an attachment to the Form 17 Disclosure Statement is probably the preferred course of action, because otherwise you need to go through the inspection report and try to disclose every material fact discovered by the inspector (and/or repair those items). Note though you probably need the inspector’s permission to attach their report and they may be reluctant to allow that since they don’t have any contractual privity with the buyer, and they probably want their contractual limitation on damages if the buyer ends up relying on their inspection as part of the purchase of the house.

    Second, I’m not aware of any reported cases where a seller doing a pre-sale inspection was the fact pattern, but I doubt that would lead to the same type of analysis as in the two cases mentioned above. There are two differences: (1) Who picked the inspector; and (2) The ability of the buyer to ask questions about the inspection without fear of reprisal from the seller. Remember under Form 35R the seller does not have the right to terminate the contract, but prior to mutual acceptance they can decide to deal with another buyer.

    Third, hopefully the seller doing a pre-sale inspection would not discourage a buyer from still having an inspection contingency and doing their own inspection. That presumably would bring the facts back within the fact pattern of the two cases, but also cause the seller to wonder what exactly they gained. I have seen a buyer back out after doing their own inspection when their own inspection had little resemblance to what the seller’s inspector found. So there is at least one downside to the seller doing their own inspection beyond the having to disclose/resolve issues that the inspection finds, which itself is a huge issue.

  23. 23

    RE: Kary L. Krismer @ 18

    Correct. That is why I said ” You can “waive” inspection in the offer but reserve the right to DO an inspection “for buyer’s information only” prior to closing. ”

    Sorry if I wasn’t clear that the offer/contract provided that option via a clause, usually written into 22D in the blank last item. You can’t always get away with that. Depends how many offers there are. It was easier 2012 through 2014 in multiple offers than last year and this year. But still doable most of the time. Works better if you do the full inspection after appraisal and loan approval.

  24. 24

    RE: Kary L. Krismer @ 21

    This worked in my buyer’s favor last year when the inspection posted by the seller scared everyone away and we were able to do an offer “subject to inspection” and have our own inspections done. An inspection report on an old house without an inspector present to talk through it can backfire on a seller.

    I don’t like them because then the buyer is asking me to explain and interpret the entire posted inspection report. On a house in decent shape, not a big problem. But on a problem house it puts me in an awkward position when the buyer doesn’t understand what he is reading and needs me to “explain”.

    I don’t agree that the buyer always has to do their own inspection if they have a pre-inspection in their hand. Sometimes yes. Sometimes no. It depends on the house and the report. I have seen several be too thorough, if there is such a thing. Bringing up items that might be defective, but after scaring away buyers and our bringing in experts to further examine, were not a problem. The pre-inspector had red flagged pretty much everything, which does technically protect the seller better, except it scared everyone away at the same time. :)

  25. 25
    I'm just here so I won't get Fined says:

    RE: Ardell DellaLoggia @ 22

    In a case like this where the buyer has waved the inspection contingency but is still allowed to do an inspection for information purposes only, would the seller be protected given that the buyer can still walk away from the deal but would lose the earnest money? IF this is the case it would seem like a good way for the seller to work around the potential liability problem… again IF that is the case.

    Should the seller return the earnest money just to avoid any legal head aches down the road should the buyer feel that they were misled (assuming the deal falls through)?

  26. 26

    Buyers need to be very careful when waiving their financing contingency and should discuss this action with their mortgage professional before doing so. Even though they may not care about the appraisal or where the value comes in at (appraised values lag behind current sales trends by about 30 days since they are based on closed sales of like properties), the lender still has to have an appraisal – assuming the buyer is getting a mortgage and not paying cash.

  27. 27
    NoahFect says:

    RE: Kary L. Krismer @ 8 – I must be reading this incorrectly (IANAL). It sounds like the appeals court not only reversed the judgement of the trial court, but awarded attorneys’ fees and 18% interest to the sellers after the buyers defaulted. If the buyers had waived inspection (which they didn’t) they wouldn’t even have won at the trial court level, and in neither case would the sellers’ actions have influenced the outcome. What am I missing?

  28. 28

    RE: Rhonda Porter @ 24 – And to add to what Rhonda said, once a buyer gives a seller notice of a low appraisal, if the seller doesn’t respond favorably the buyer’s only option to proceed to closing requires that they waive their financing contingency. So before sending that notice, hoping for a reduction in price, the buyer should check with their lender.

  29. 29

    By NoahFect @ 25:

    RE: Kary L. Krismer @ 8 – I must be reading this incorrectly (IANAL). It sounds like the appeals court not only reversed the judgement of the trial court, but awarded attorneys’ fees and 18% interest to the sellers after the buyers defaulted. If the buyers had waived inspection (which they didn’t) they wouldn’t even have won at the trial court level, and in neither case would the sellers’ actions have influenced the outcome. What am I missing?

    I’m not sure what you’re saying about waiving the inspection, but here’s what happened. The purchase included seller financing of $149,000. That was still owing, but the buyers were claiming damages due to the condition of the property. The trial court awarded the buyers damages for having to tear down the house, attorney fees, treble damages and a few other things, leaving the buyers owed about $24,000 more than the amount owing on the note. The appeals court reversed, leaving only the amount on the note owing, plus the seller’s attorney fees.

    Since the sale had closed, presumably the buyers had waived their inspection prior to closing. But the reason they lost was their inspection did find questionable things, but they failed to ask the necessary questions (or follow up questions). So it’s not a matter of having waived the inspection. It’s a matter of having had the right to do the inspection, having done the inspection, but not having been put off by what the inspection found and asking the right questions.

    Note it’s unclear what the result would have been if the buyers had the right to do an inspection but had not done one. Or what would have happened if they had done one but the inspector had not found any evidence of these problems. What is fairly clear though is that if the buyers had not had a right of any inspection the analysis would not have been the same. Given what the seller reportedly did to hide things the result probably would have been the appeals court upholding the trial court decision.

  30. 30

    RE: Rhonda Porter @ 24

    Same as I said about “no inspection contingency” does not necessarily mean no inspection. It just means the buyer has one so as to deal with the issues themselves.

    Same thing applies when we waive the Finance Contingency, though it is more common to merely waive the “must appraise” part of the Finance Contingency. That means the buyer is responsible for what happens between them and their lender if and when it does not appraise. Doesn’t mean there is no appraisal, it just means the result is not the seller’s problem.

    As an aside, when I started in the business it was never the seller’s problem if the house did not appraise. If the buyer was putting 25% down and the appraisal came in low then their 25% down became 20% down.

    That is why a 35% down offer holds more weight in multiple offers than a 20% down. PMI doesn’t kick in if it does not appraise, the buyer makes the same $ amount downpayment and the 35% just is 30%. No extra cash needed. No problem. The appraised value is not the seller’s problem, nor should it be unless the buyer can not get a mortgage because of the appraised value coming in less than purchase price.

    Appreciation should be funded by a buyer’s cash…not a lender’s loan.

    http://raincityguide.com/2013/03/12/how-and-why-cash-infusion-fuels-a-housing-recovery/

    “Buyers need to be very careful when waiving their financing contingency and should discuss this action with their mortgage professional before doing so.”

    What’s to discuss? It’s obvious that a financed buyer must have access for the lender’s appraiser. That does not vary from one sale to another or one lender to another. Hopefully there’s not an agent in the entire State who doesn’t know that…in the Country for that matter.

    No Finance Contingency does not mean the seller is being tricked into believing it is an all cash offer. That’s deceit and fraud. That an appraiser must be allowed in if the buyer is financing the purchase has to be part of the offer even if there is no Finance Contingency or no Must Appraise clause.

    The buyer is simply being held responsible for “their side of the fence” without making their personal issues the seller’s problem. They risk the loss of their Earnest Money if they can’t complete the sale. They assume the risk instead of pushing the risk on to the seller.

    Buyer’s should know WHY they put up Earnest Money. If it can never be “at risk” then why bother having it at all?

    That said 26 years come June 1 I have not a buyer lose their Earnest Money or not get their financing. Maybe there is less risk if the seller weren’t being asked to assume all of the buyer’s risks.

  31. 31

    By Ardell DellaLoggia @ 28:

    Same as I said about “no inspection contingency” does not necessarily mean no inspection. It just means the buyer has one so as to deal with the issues themselves.

    I think you missed my point, that without a contractual right to enter the house there will not be an inspection. So a buyer cannot simply not include an inspection contingency and then do a later “for their information only” inspection without the seller’s permission. Would a seller grant that permission? I have recommended that to a seller client in the past, but it’s their decision.

    Same thing applies when we waive the Finance Contingency, though it is more common to merely waive the “must appraise” part of the Finance Contingency. That means the buyer is responsible for what happens between them and their lender if and when it does not appraise. Doesn’t mean there is no appraisal, it just means the result is not the seller’s problem.

    . . .

    That is why a 35% down offer holds more weight in multiple offers than a 20% down. PMI doesn’t kick in if it does not appraise, the buyer makes the same $ amount downpayment and the 35% just is 30%. No extra cash needed. No problem. The appraised value is not the seller’s problem, nor should it be unless the buyer can not get a mortgage because of the appraised value coming in less than purchase price.

    Striking the appraisal provision is an extremely crude way of getting things done, but if the buyer is putting down a very large amount over 20% it’s probably acceptable in a pinch.

    I much prefer that a buyer specify either how much extra funds they will put down to get their financing, and/or a price level at which the low appraisal provisions kick in. Some firms also have low appraisal forms where the buyer will kick in more funds, but all the forms I’ve seen to date overstate the price reduction if the appraisal provision still kicks in despite the extra funds.

    [Rhonda Porter]”Buyers need to be very careful when waiving their financing contingency and should discuss this action with their mortgage professional before doing so.”

    [Ardell]What’s to discuss? It’s obvious that a financed buyer must have access for the lender’s appraiser. That does not vary from one sale to another or one lender to another. Hopefully there’s not an agent in the entire State who doesn’t know that…in the Country for that matter.

    It’s unclear what context Rhonda was using the term “waived.” She could have been using it like I did above on the inspection contingency, meaning simply not using a contingency form in the contract, or she could have meant waiving it later on, or she could have meant either.

    But the reason it’s important to check is you have to make sure everything is going to be in order. So for example, you don’t want to discover 2 days after waiving your financing contingency that the lender will not be able to fund until 5 days after the scheduled close. That should be dealt with prior to waiving, otherwise if the seller doesn’t extend the sale date the buyer is in default and could lose their earnest money. That’s why I responded to Rhonda’s post above indicating that a buyer should check with their lender before sending a notice of low appraisal, because sending that notice could result in the buyer having to waive the financing contingency a few days later.

  32. 32

    RE: Kary L. Krismer @ 31

    1) I think you missed my point. That is quietly written in to the blank spot in 22D without the need for highlighting it via a 34. I do it as part of the offer, but you seem to be more seller focused. No reason a seller can’t do that so that if a buyer doesn’t exercise the option it is on the buyer. Oddly the one transaction where I represented the seller where I was a bit uncomfortable that the buyer was not fully aware-informed was the one that did a full pre-inspection. We were exempt from the Form 17 on that one. Estate Sale.

    2) Often the removal of the must appraise clause happens during offer review vs at time of offer. Limiting the removal to a specific dollar amount is the same as leaving it in. It just doesn’t work. I have not done that but I have had clients hire me who tried that repeatedly at the advice of other agents and lost in multiple offers every time. That is like an offer with no price. Price = Appraisal + $20,000 = unknown price. Oddly the two people I can remember who hired me after trying that I was able to get a house for without touching the finance contingency at all. So while your proposed method didn’t work, I was somehow able to get around the issue entirely.

    3) My point as to checking with a lender at the time you do something is often these issues come up at 10 p.m. during multiple offer review. Yes, absolutely the agents need to fully understand the ramifications and consult the lender if they are not sure how this all works for that buyer. But doing it at the time of the removal of the contingency is usually not possible in multiple offers and I have had “removal of finance contingency” be a counter during multiple offers. If we did not answer in the affirmative within 10 minutes then they would simply have moved to a different buyer who was all cash. The agent needs to be prepared for handling things well on the spot and quite often late in the night. I have had that call (and I call that part of multiple offers “The Call”) very late at night. Basically they narrowed it down to two buyers and the question in the call answered promptly makes the difference between getting the house and not getting the house.

    People who lose a lot in multiple offers need to get a 3rd party review of WHY they lost 13 times. Often there is something they are doing wrong…like making the offer price “price=appraisal+$20,000=unknown offer price”.

    In hot markets the agents who win usually are the ones who know more without needing to ask someone who is not available at 11 p.m.

  33. 33

    RE: Ardell DellaLoggia @ 32
    1. Sorry I missed that.

    2. No removing the language is not the same, because if the appraisal comes in low it may mean the buyer might not be able to get their loan! Even without the appraisal language the finance contingency will kick in and give the buyer the right to their earnest money back.

    It’s much better to specify what that point will be where the appraisal language can kick in, so that the seller has some idea what the risk is of the property appraising low.

    So, for example, if a property is listed at $500,000, and the buyer gets two offers for $575,000 using a 20% down loan. If one buyer says they have extra $40,000 to put down and the low appraisal provision won’t kick in unless the property appraises at less than $525,000, that’s much better than an offer that just removed the appraisal language.

  34. 34

    RE: Kary L. Krismer @ 33

    We’ll agree to disagree on point #2.

    I have never, ever in 26 years had a sale fail because the buyer could not get their financing. So in my mind some professional in the room screwed up if that happens. That is why I think the BUYER should assume the risk of the financing not going through vs the seller. Why is it the seller’s problem if the buyer can’t get their financing? The buyer loses their Earnest Money and if it was their agent’s fault or their lender’s fault for leading them to believe they could get that loan, then they should go after their own professionals vs expecting the seller to pay for everyone’s mistake.

    I have had 2 or 3 “shakey” buyers in 26 years BUT a “maybe they can get a loan” buyer should NOT be able to get a pre-approval letter! That’s the failure of the system and the seller should not have to contend with that after they have moved out of their home. Why is it the seller’s problem?

    This is very important because the idea that a buyer’s financing could actually fail, vs the buyer using the Finance Contingency as an excuse to back out and get their Earnest Money, is really NOT a common occurance. If they lose their job, yes. But again. That is not the seller’s problem. We all know a buyer could get a failed mortgage if they want to back out by telling the lender they plan to quit their job or they are pretty sure they are going to get fired soon. They just have to send a letter like that to the lender and squash their own financing if they are trying to weasel out using the Finance Contingency. Any number of ways a buyer can cause a loan to not go through. But being pre-approved and not getting their mortgage with no change…just shouldn’t happen and does NOT happen in my transactions.

    Exception is when the HOUSE fails for financing. I’ve had that a few times, but we worked through it successfully each time. When the lender wants a new roof on before closing. When the house has asbestos shingle and the appraiser notes it on the appraisal and the lender won’t fund it with asbestos shingle. The house failing should be the seller’s problem and not the buyer’s problem. Luckily we found other ways for the sale to close in those instances. But the same way I don’t think the seller should be responsible if the buyer can’t get financing I also don’t think the buyer should be responsible if the product the seller is selling can’t get financing unless that was disclosed in the listing.

    You may be absolutely theoretically correct in your thinking and example, Kary. But you obviously have not been in as many bidding wars from the seller or buyer side that bid up WELL OVER asking price as I have. It makes ZERO sense for a seller to have 9 offers that bid up 10% or more over asking price and end up with a price that is only 3% over asking price. The buyer who agrees to fund the significant appreciation-bubble portion of the price with their own money with no limit…is the one who gets the house.

    That’s the reality of Seattle areas where I work and Eastside areas where I work. YMMV

    Your example doesn’t make any sense because two buyers offering 20% down with a bid up to $575,000 on a $525,000 house is not reflective of what is happening. That scenario would NOT likely end up with a waived Finance Contingency or a removal of the Must Appraise clause.

    More likely is there are 6 (or more) offers, one is all cash, 2 are 35% to 50% down, 2 are 20% down and 1 is less than 20% down. If you have a bid up from $525,000 to $575,000 and only two offers, then something is amiss and no reason for either buyer to be playing with the Finance Contingency.

    The reality of playing around with the Finance Contingency happens when a 35% down buyer wants to be viewed “same as cash” because they are competing with a cash offer or maybe a 30% down offer trying to compete with a 50% down offer. Not two 20% down offers trying to win.

    20% down offers can not play with the must appraise clause or the Finance Contingency because the pre-approval becomes completely invalid if PMI kicks in. So this issue, this topic, doesn’t apply to 20% down or less buyers who should not be screwing around with the Finance Contingency, nor should a seller accept an offer where the buyer erroneously thinks they can do so easily.

    Bid Ups are completely useless if the price is not FIRM at time of acceptance. Huge bid ups are not expected to appraise. The LIST price should be what is expected to appraise. If anyone is positive that the bid up price will appraise, then the agent put the wrong List Price on it in the first place.

  35. 35

    By Ardell DellaLoggia @ 34:

    RE: Kary L. Krismer @ 33 – You may be absolutely theoretically correct in your thinking and example, Kary. But you obviously have not been in as many bidding wars from the seller or buyer side that bid up WELL OVER asking price as I have. It makes ZERO sense for a seller to have 9 offers that bid up 10% or more over asking price and end up with a price that is only 3% over asking price. The buyer who agrees to fund the significant appreciation-bubble portion of the price with their own money with no limit…is the one who gets the house.

    Ignoring the “no limit” thing, which is impossible, I think that’s what I said. What we disagree on is whether you get there simply by striking the low appraisal language.

    I prefer a contract that says exactly what the buyer must do in the way of bringing funds to the table if the appraisal is low. You prefer a contract which strikes the low appraisal language, pretending that does more than it does.

    Striking the low appraisal language doesn’t make the financing contingency non-dependent on the appraisal. It just means there are no pre-agreed terms as to what happens if the appraisal comes in low.

    Edit: I found at least three recent Legal Hotline letters from Annie Fitzsimmons where she explained that crossing out the language doesn’t work. This is a short succinct ending to one of them. ” Simply crossing off the low appraisal provision of the financing contingency does not protect seller if the appraisal comes in low and as a result, buyer chooses not to or cannot make up the price difference. Buyer still has the benefit of the financing contingency.”

  36. 36

    RE: Ardell DellaLoggia @ 30 – What’s to discuss?

    Yikes! I have seen buyers who are being advised by agents to waive their financing “or else” they won’t be able to play in this market.

    Not all buyers are in position to do that. I know you address the larger down payment being a plus…but but but… lenders need to be clued in on the transaction to help assure a successful closing.

    I had one transaction a while back where the agent (or buyers) did not tell me they were waiving the financing contingency and there were issues with the appraisal…minor but guess what? The seller said, sorry – we’re not going to do a thing to the home and the seller was not going to extend the contract for the repairs. Suddenly the buyers agent was having a fit because the buyers were at risk of losing their earnest money.

    Had I at least had a chance to talk with the buyers before this offer was structured, I could cautioned them about some of the potential pit falls or they could have asked me questions.

  37. 37

    RE: Ardell DellaLoggia @ 32 – “My point as to checking with a lender at the time you do something is often these issues come up at 10 p.m. during multiple offer review. ”

    Most of the agents I work with contact me before the “reviewing offers” stage. Lenders can (should IMO) be contacted prior to making the offer.

    This also helps the buyer know what their proposed mortgage payment will look with with current rates, property taxes and at the highest possible offer they are considering.

    Typically buyers agents will have me call the listing agent to review the buyers loan approval and to introduce myself.

  38. 38
    DontRushIntoIt says:

    By Ardell DellaLoggia @ 34:

    RE:
    I have never, ever in 26 years had a sale fail because the buyer could not get their financing.

    Then you are definitely the exception … I’ve had buyer’s lose their job 2 days before loan funding, buyers who had been looking for months and went out and bought a car without realizing it hozed their DTI, etc, etc.

    You have had very good luck …

  39. 39

    By Rhonda Porter @ 36:

    RE: Ardell DellaLoggia @ 30 – What’s to discuss?

    Yikes! I have seen buyers who are being advised by agents to waive their financing “or else” they won’t be able to play in this market.

    In a sense you should be flattered that you’re seeing that, because that means the agents think you can get the job done. Either that or they’re just bat-____ crazy. Or maybe both!

    I do wonder though how many of those agents are also listing agents. It’s not really enticing for a seller to go into a deal knowing that a likely result is getting a buyer’s earnest money–unless maybe that EM is really large. They would much rather know that their house is actually going to sell when they expect it to sell.

  40. 40

    RE: Rhonda Porter @ 37

    I don’t disagree with you Rhonda except that the agent still has to know how to do all that in real time as it plays out. It is not uncommon in multiple offers for a buyer to be asked to increase their cap price at 10 p.m. at night. I find it hard to believe that an agent wouldn’t know the MAX affordability of their client and know how to calculate a monthly payment in 30 seconds on their mortgage calculator and adjust for taxes as well.

    I do however contact the lender with each offer made to get the pre-approval letter freshened up with a new date and to tell the lender what price I want on the letter. I have my clients pre-approved up front at MAX affordability and then decide what price I want on the letter (lower not higher of course) depending on the circumstances.

    Sometimes I want it to match the offer. Sometimes I want it to be a couple hundred thousand more than the offer. It depends on the offer strategy in each case and offer strategy is clearly in an agent’s domain with their client and not the lender’s.

    Whether or not the buyer can or should remove any contingencies is clearly a discussion between a buyer and their agent. Sometimes we don’t but are countered late at night with a call that says “we have 6 offers and your client will have it if they agree to X right now.” They give us about 15 minutes to adjust our paperwork or maybe 30 minutes OR the other buyer who does do that gets the house.

    That’s how “bidding wars” that erupt from multiple offers happens. Not all multiple offer situations are “bidding wars”. But often when a buyer loses in multiple offers many times before hiring me it is because they thought they could answer “tomorrow” and by midnight someone else got the house.

    It’s not fair and it’s not pretty but it is the reality in many markets.

  41. 41

    RE: Rhonda Porter @ 36

    The agent should clearly know their client and all of their circumstances better than anyone else. Remember a lot of these massive bid outs with contingencies removed involves high end buyers who are not buying at full capacity to their max qualify point. Far from it in many cases.

    I have heard other agents having these conversations with their clients in driveways. The last time I heard an agent tell a client to remove the Finance Contingency in the driveway the buyer said he was willing to lose his Earnest Money if he lost his job, since that was the only way he couldn’t get the mortgage. He was willing to take the risk. Heard it during the Open House.

    I discussed this with my client and we could not be certain the other buyer even made the offer so we included the Finance Contingency. Guess what. 9 p.m to 10 p.m. We got the call saying my client could have it IF he removed the Finance Contingency. It was not a surprise to us obviously. We had already discussed every possibility of what the seller might want in advance.

    Removing the Finance Contingency or ANY Contingency means the buyer is willing to risk their Earnest Money. Earnest Money is supposed to be lost sometimes. When did everyone forget that? With NO risk of loss we don’t need Earnest Money in the first place.

    I hope none of my clients ever do lose it. But to lead them to believe there is no risk and it is always returned is contradictory to it’s purpose.

  42. 42

    RE: DontRushIntoIt @ 38

    I get VERY up close and personal with my clients. It is not merely luck. I understand financing. In fact agents are taught how to qualify a buyer in order to get a license! Why does everyone think that the agent should not be able to qualify a buyer except as to running their credit report? It is a mandatory part of an agent’s education.

    Honestly, WA is the first State I have worked in where agents don’t seem to be held accountable for knowing things.

  43. 43
    Anonymous Coward says:

    RE: Rhonda Porter @ 37 – “This also helps the buyer know what their proposed mortgage payment will look with with current rates, property taxes and at the highest possible offer they are considering.” Wait, what?!? Are there really buyers looking at properties in excess of a half a million dollars, putting down over $100,000 of their own cash who are so financially incompetent who can’t/don’t/won’t estimate a mortgage payment at the time of offer?

    I’m really with Ardell on waiving these contingencies. It’s not for the how-much-a-month and how-much-house-can-I-afford crowd. It’s a way for the financially literate buyer who understands that risk=money and is willing to assume (aka can afford) risks that would traditionally be assumed by the seller. Doing so allows the buyer to make a “same money offer” which is more valuable to the seller, or even more valuable than a higher “face value” offer. Anecdote: we bought in 2014 and we only made one offer on one house. We ended up in a bidding war (it was under listed by 8-10%) and won it without having to be the highest priced offer. We did a full pre-inspection which allowed us to be comfortable assuming the risk of waiving the inspection contingency. We also included a $0/mo lease back for 2 mo. Sure that cost us $1500-$3000, but it was worth a hell of a lot more to the seller. And our lender confirmed to the sellers agent that our financing had very little risk of falling through.

  44. 44

    RE: Anonymous Coward @ 43 – The problem with waiving a financing contingency relates to the old phrase “there’s no late in real estate.” If there’s a glitch and your lender and/or escrow cannot fund/close on the day of closing, you’re done if the seller won’t agree to an extension. And in a rising market with a significant EM, the seller may be reluctant to extend. Without a significant EM the buyer really hasn’t offered much more by not having a financing contingency.

    It’s not just whether the buyer has a great credit score, high earnings and is well qualified for a loan. It’s whether they qualify, the lender gets the funds to escrow timely and everything else gets done. Even the best qualified buyers waiving a financing contingency with some lenders would be incredibly stupid.

  45. 45

    By Anonymous Coward @ 43:

    RE: Rhonda Porter @ 37 – Are there really buyers looking at properties in excess of a half a million dollars, putting down over $100,000 of their own cash who are so financially incompetent who can’t/don’t/won’t estimate a mortgage payment at the time of offer?.

    I think you’d be surprised. As Donald Trump has proved, just having a lot of money doesn’t mean that you’re educated or intelligent.

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