For the last two years, parts of the Charlotte area have been in the midst of a housing shortage due in parts to rising land costs, limited options priced below $300,000, and the addition of 45 new residents each day. Yesterday, the market stats for Charlotte and Mecklenburg county showed that inventory hit new record lows, with the median days a home was on the market before receiving an offer was 7. Yes, one week was how long most homes were on the market (that changes the higher up in price you go).
With that being said, shopping for a new place can be frustrating and, depending on the price point, can result in a multiple offer situation for the Buyer. In some states, how multiple offers are handled are clearly stated in guidance provided by the local boards of REALTORS or real estate commissions. Not so in North Carolina (or even South Carolina) and so it can leave a buyer thinking of ways to score a deal on their next home. Truth be told, there’s more HORRIBLE ideas than there are good ones so, let’s walk through what not to do when presented this situation and I’ll share what works.
Don’t Do: The Complicated Offer
I can’t tell you how often I’ve encountered The Complicated Offer in a multiple offer situation. This is the Buyer who, while well-intentioned, has a few requests that almost immediately results in their offer ending up in the trash (after presentation of course because all offers must be presented to the Seller). Whether it’s the desire to include ALL of the furnishing in the house (this is okay when buying a vacation property but rarely okay for a condo in Uptown), the classic car in the garage, or even an offer loaded up with addenda. When you’re in Seller’s market, keep your offer as simple and concise as possible. I’ve never had someone say “now, here’s an offer I’d prefer with it loaded up with a myriad of additional contingencies…” and the likelihood that yours would be the exception is rare.
Do: Follow the rule of K.I.S.S: Keep it Simple Sally. In a tight multiple offer situation, try to refrain from additional contingencies that will only add to a Seller saying no.
Don’t Do: Financing Contingency
So this is one that’s localized to North Carolina because, in North Carolina, our standard Offer to Purchase does not contain a financing contingency. Really, the Offer to Purchase contains no contingencies at all for anything like Appraisal, Finance, or Inspection; choosing instead to rely on the Due Diligence Period to enable the buyer to complete anything they need to in order to complete the inspection.
Some contingencies are inevitable, such as the FHA / VA Addendum for a buyer obtaining a FHA or VA loan. Still, even the requirements under both addenda are very minimal and shouldn’t stop a Seller from selecting another type of financing over a FHA Buyer. With that being said, I’ve seen and have had agents tell me that they’re slipping in additional addenda that state things like the home must appraise (as they then proceed to advise their client to offer way over asking price) and other safety nets. These are great ideas for a balanced or Buyer’s market but in a Seller’s market, this just earns a buyer a big fat NO.
Do: Instead of focusing on a financing contingency, work with your lender to get a fully underwritten mortgage pre-approval. Some lenders will go so far as to complete 90% of the loan process during the pre-approval stage and will issue an approval letter conditioned on finding a property, obtaining an appraisal, final underwriting and closing. That’s about as simple as it gets for a mortgage and will put you offer right up there with an offer paying cash.
Don’t Do: Ridiculous Due Diligence Period
Tailing off the last don’t do, asking for an elongated due diligence period may be a signal to the Seller that your offer may not be all that it claims to be. The Due Diligence Period allows a Buyer to terminate their contract or any or no reason within the Due Diligence Period without further obligation to the Seller. For example, some Buyers ask for a long due diligence period while they are attempting to sell their house. They don’t want to add a Contingent Sale Addendum for fear of it being rejected so they quietly ask for a long due diligence while they quietly attempt to sell. This can prove risky for the Buyer if their buyer does not close and they are beyond the Due Diligence Period.
Do: Try to tighten your due diligence period down to around 10-20 days max. This means consulting with your lender to find out their timeline for processing the file and speaking with your inspectors to ensure they can get reports to you in time to make an informed decision.
Don’t Do: The Not Quite Full-Price Offer
It happens every so often that I will receive a call from a Buyer’s Agent saying “I have a full price offer on your listing that I’m sending over…”. I get excited because that confirms my read on the market and the pricing of the house. However, when the offer arrives, I discover that it contains a hefty request for Seller Paid Closing Costs. Requesting Seller Paid Closing Costs is a clever way to finance in a portion of your out-of-pocket costs. However, in a tight market, asking for Seller Paid Closing Costs can leave a Seller wondering if the Buyer is financially able to close on the house and some are even offended by the ask. It usually takes a bit of explaining to help less savvy Sellers understand what the Buyer is attempting and how we should respond.
Some lenders even encourage a Buyer to ask for Seller Paid Closing Costs as a way to help a Buyer that’s not quite able to close with the cash they have on hand. This is a fine strategy in a balanced or Buyer’s Market but in the Seller’s Market, this doesn’t work. Asking way over asking to try to cover the closing costs is also another bad strategy since the property will still need to appraise. If the property doesn’t appraise, the deal will die after the Seller realizes they’re still on the hook for the Seller Paid Closing Costs.
Do: If closing costs are an issue, work with a lender that has access to a bond program that allows the borrower to finance in a portion of their closing costs in a silent second mortgage. The way that many of these work is, after a set period of time, the closing portion is eliminated from the loan and if the Buyer has to sell ahead of that date, they would only pay the remaining balance.
Don’t Do: Videos and Letters to the Seller
This is the DUMBEST trend that has cropped up in the last few years and it’s one that can prove expensive for all involved. Lately, there’s been a trend of a Buyer, going around their agent, with a letter directly to the Seller pleading with them to accept their offer. They are trying to humanize their offer, which isn’t always a bad thing. Here’s where the train goes off the tracks in a major way.
There was a time in our country when it was, not only legal, but encouraged to discriminate against potential home buyers of color. Redlining, Blockbusting, and Steering were all techniques used by mortgage bankers, Realtors, and our government as a method to keep neighborhoods separated. On April 11, 1968, President Lyndon Johnson signed the Fair Housing Act into law, which prohibited discrimination on the basis of race, color, religion or national origin. It has been expanded since to include persons with disabilities, familial status, sexual orientation and gender identification.
Discrimination is ignorant, stupid and costly. In 2016, HUD increased the civil penalty amount from $16,000 to $19,787 for a first-offense violation of the Fair Housing Act. Repeat offenders can find themselves facing fines of up to $98,935.
Letters and videos to the Seller can become a tool for a Seller to discriminate in selecting one buyer over the other, resulting in a potential fair housing lawsuit. So, if you’re an agent encouraging your clients to do this nonsense or if you’re a listing agent that’s passing on these letters to your clients, I hope you’re ready to be made an example of. You see, in a Seller’s Market, where Buyers already feel as if they have to sacrifice so much to get a home of their own, the realization that the reason that they didn’t win a competitive offer is as a result of a letter or video to a Seller can make a Buyer fairly litigious.
Do (for the Seller): Ignore the videos and letters. Let facts and solid negotiation be the deciding factor.