What is important in this Crazy Housing Market
We have been in a crazy Real Estate market for the last few months. With historically low-interest rates and so few homes on the market has created a bidding frenzy over the homes that are available in this market. Buyers are giving up their safety nets in order to “win the bid”. What are the buyer's safety nets? Well, there are several, but the most common ones given up are the upper limit on the purchase price, appraisals, inspections, and listening to your REALTOR®.
Let’s take a look at how these affect you. If you give up the upper limit on the purchase price, you are probably overpaying for the property. There is nothing wrong with this as long as you know what this is going to do to you. It can cause you to have to take money out of your pocket to pay the difference between the offered price and the appraisal price. In addition, you will have to wait longer to sell the property before you can make your money back. The house or your circumstances may be worth taking these risks. I have a client that needed to move closer to her daughter for medical reasons and she was more than willing to pay a little extra for the house to shorten her commute. Sometimes it is to get your children into a school district, be close to work, bicycle paths, more room, or shopping. You may have several reasons or just one that is important enough to you to pay over the appraised value.
Overpaying also affects the appraisal. (An appraisal is a valuation of real estate, by the estimate of an authorized person. ... Appraisals are typically used to determine a possible selling price for the property.) Your new home will not appraise for more just because you paid more for it. In the long run, you may be fine because your purchase price will help raise the value of other homes in your area, but this will take a while. It could take years.
I highly recommend that you do not give up your inspection rights. You can indicate that you are buying the home without asking for repairs, but inspections are very important. I have seen several homes that looked very nice inside and were completely updated that were a wreck underneath the updates. I have had several clients that look at the inside that is freshly painted, the kitchen has new appliances and everything is “just perfect”. However, if you look under the surface, not everything is perfect.
A home inspector will look at the underlying structure and let you know what repairs you must make and what repairs you may want to do over time. I can’t say that I have seen it all, but I have seen a lot of things throughout the years. Recently, my clients made an offer on the cutest house I have seen in a while. They were paying cash, so the appraised value was not an issue. The home had been completely remodeled inside and painted outside. It really was “just perfect”! They did leave the inspection contingency in place so even though the time allowed for the inspections was shorter than normal, they had time to perform the inspections. Through the inspection process, they found that the roof needed to be replaced, the furnace did not work, the electrical was in desperate need of repair and updating, the sewer was full of roots, the hot water tank did not work, and the toilet would not shut off. All in all, there were about $45,000 in repairs that needed to be done to this “just perfect” house.
After finding out what it would take to fix the house, the buyer could make an informed decision. They could walk away from the deal and only lose their deposit. They could ask the seller for some repairs, or for a reduction in price, or they could accept the home “as is” and move forward with the purchase. By leaving the inspection contingency in place you leave yourself with the ability to make some choices and the ability to inspect the home. If you write out the inspections, some agents believe that you give up the right to do inspections. I believe you still have the right, but it is better not to turn inspections into a battle, so it is better to leave the inspection period in place so there is no question as to your rights even if the earnest money is lost.
REALTORS® have been through a lot of different situations and are trained to help you understand the advantages and disadvantages of every decision you are making regarding buying or selling a home. Our job is not to make decisions for you but to help explain the consequences of the decisions you make.