Pity the poor real-estate buyer right now in today's insane seller's market. I listed a home in Millcreek a few weeks back using a specific marketing strategy that ended up getting the seller 24 offers within three days. Nowadays, most buyers will offer slightly above asking price, and a few wild offers even include "escalation clauses" where the buyer is willing to pay up to 20% above the asking price.
Let me backtrack and explain what a seller's market is. It means the available inventory is less than the number of buyers wanting to buy homes. I'm seeing about half as many homes for sale right as there was a year ago.
An escalation clause in a buyer's offer might read something like the following: "Buyer will offer seller's asking price, but if there are multiple offers, buyer is willing to pay 'X' over the highest bona fide offer, not to exceed 'Y.'" For example, if a home is listed at $450,000, a buyer might offer the asking price, but if the seller receives six offers, the buyer's escalation clause says the buyer will pay $1,500 over the highest offer received by the seller—not to exceed a sales price of, say, $475,000. The escalation clause doesn't guarantee the buyer will win the battle for the home because the seller is free to accept whatever offer they choose.
I have seen sellers accept lower offers because they were charmed by a letter written by the prospective buyer(s) or because they knew the buyer.
But above all, the cash buyer is beating out all the other buyers these days, especially cash buyers who write contracts with no contingencies. What are purchase contract contingencies? To paraphrase language in the Utah Association of Realtors' real-estate purchase contract, there are three contingencies, or protections, built into the real-estate purchase:
1. Buyer's right to have the property inspected by anyone they choose, and buyer can cancel the contract without penalty by a certain date;
2. Buyer's right to cancel the contract without penalty if the property does not appraise for the purchase price;
3. Buyer's right to cancel if buyer's loan is denied by the lender.
Cash buyers are often "flippers" who intend to purchase, update and sell/flip the home for a large profit. Savvy cash buyers will present offers with no contingencies and offer a fast closing to the seller. If you currently own a dwelling, you probably get dozens of postcards per week that offer to "buy your home for cash." Beware of such offers because their strategy often include getting you to accept their cash offer, and then they have the home "inspected" and come back and tell you there's a ton of things wrong with the home. And if you still want them to buy, you have to discount your price to get your money out quickly. Flippers like these take advantage of people facing foreclosure and find them in public records of foreclosure notices.
Whether you're a buyer or seller in this real estate market, know you need a strategy and call a professional!