Many homebuyers in Colorado Springs have had a tough time buying a home this spring. Just when they think they’ve found the perfect place…it’s gone even before they’ve had a chance to put in an offer. Or the offer is outbid. It’s especially true in the $250K and below market. This hot seller’s climate has spawned some creative and sometimes questionable buyer tactics. And has added even more stress in an already stressful process. It’s even resulted in some folks bending Colorado real estate law to their advantage. In many cases it’s stretching the legal limit.
Here’s what I’m talking about … some buyers and their agents are submitting multiple offers on different properties even without viewing them. Sight unseen. In Colorado, buyers can terminate the contract if, by their own subjective opinion, they don’t approve of the inspection, the appraisal, the loan terms…AND at several other milestones during the contract-to-close process. So there has emerged a sneaky strategy. Here’s the play — bid on several houses, sight unseen, and then ditch all but the best one after the contract-to-close process is underway. Usually the first opportunity to get out of the contract is just after the inspection is completed. To get out of the contract, the buyer simply has to submit a written intent to terminate prior to the inspection objection deadline. The exact text of the Colorado Contract to Buy/Sell is:
“If…is unsatisfactory, in Buyer’s sole subjective discretion, Buyer may, on or before Inspection Objection Deadline: … Notify Seller in writing that this Contract is terminated…”
As long as the letter is submitted by the deadline, the buyer gets their earnest money back. Perfectly legal, but these kinds of buyer tactics are very questionable. And somewhat dishonest.
In the meantime, the sellers have taken their property off the market for up to 3 weeks. And then must start the process over. What can sellers do to avoid this sort of dishonest buyer tactic … unfortunately, not much except maybe this: Pre-qualify every buyer. Don’t accept a bid from a buyer who hasn’t been shown the property.
So, what other buyer tactics are folks employing to compete in this really hot seller’s market? The ESCALATION clause. This is a perfectly ethical buyer tactic. The buyers have an upper limit in mind. They submit a full price offer and include words like “…will exceed highest offer received by $1,000 up to a maximum price of $(insert upper limit). Although perfectly ethical, this clause may have unintended consequences — the final selling price may end up well above the appraised value. 😐 What happens then? Does the buyer pay the difference? Does the seller reduce the price? The lender certainly will not cover the difference. A good seller tactic is to counter-offer with a clause that identifies who will pay the difference and how much. Something like “…buyer and seller agree that if final selling price exceeds appraised value, buyer and seller will each pay half of the difference between final selling price and appraised value.” Or something like that. If you’re an agent, it’s a good idea to ensure your employing broker approves the language…or else – 😐 . It’s very likely that the office already has something like this in place…written by a lawyer.
Ok, here are a couple other buyer tactics we are seeing in this tight market.
- Lease-back. This can really sweeten the deal for a seller. Especially for someone who is building a new home with a completion date still pretty far out. Or a seller that would like more time to look for a new home. The leaseback transfers ownership, but then sets up a landlord/tenant arrangement that allows the seller to remain in the home for a period of time agreed upon by buyer and seller.
- Ditch the contingencies. Buyers want to buy, but not before they sell their current home. So often, buyers make the offer on the new home contingent on selling their old home. Well, what happens if they can’t sell? These sort of contingencies are common buyer tactics in a more balanced market, but in our current market…one in which the seller is receiving multiple offers…let’s just say that the offer without a contingency is more attractive than one with a contingency.
- Minimize Seller concessions. Again, the more you ask of the seller, the less attractive your offer. It’s almost the same as bidding a lower price. In a competitive market, you’ll want to make your offer THE most attractive offer. If you really want the house.
So, to wrap it up, we are currently in a seller’s market in Colorado Springs. That means it’s super competitive for buyers. To win, buyers need to offer the most competitive bid. Hopefully not one like the buyers tactic at the beginning of this post. Finally, here’s a marginally relevant (but funny!) video about the offer process (but don’t write a letter to the seller!)
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About the author: The above article “Home Buyer Tactics In A Seller’s Market” was provided by Kevin Guerrero of Keller Williams Clients’ Choice Realty. To find out more about Kevin and Keller Williams check out the ABOUT US page.
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