I wrote an article last year about combat buying or how to be the prevailing buyer in a hot market. That article came down to basically, do your homework, be prepared and move quickly. This works well when the house that you want has just come on the market, but what do you do when you are not the first one to find the house and you are in the middle of the very hot 2022 market.
As of this week, inventory has started to shrink again after being flat for most of the year, albeit at record low inventory levels. For the first 11 weeks of the year our market inventory has stayed in a range of 145 to 158 listings. At the end of February, we were at 150 listings, each week subsequent, went 149, then 145 and this week 140 listings: a new all-time low. Amazingly, well not amazingly for any year, but this year, our contracts are up. This normally would not be amazing, because contracts normally rise in the spring market, however, this year they are going up when inventory is going down. This is clearly not a sustainable situation. Without inventory you contracts have to drop at some point.
Right now, we only have 7 single family homes listed in Old Greenwich and over $2.5 million, you have 2 choices: one at $4.4 million and one at $6.75 million.
246 Single Family Home Sales and Contracts as of 3/23/22
140 Greenwich Single Family Homes in Inventory on 3/23/22
Extraordinary times call for extraordinary measures, when you’ve found the house that you really, really want and so have one or more or lots more people. First you need a good Realtor. There is probably no better time to have a good Realtor than when you are in a competitive bidding situation.
Let’s take a look at what you can do at each step of the offering and contract process.
- Interest expressed – If your Realtor tells you that other parties have expressed interest in the property it usually means that other buyers have been back more than once and/or are asking serious questions about the property such as when the roof was last replaced or how many bedrooms the septic system is approved for.
The solution when you hear that someone else is exploring an offer is to make an offer first and make it a good one.
Obviously, a high price is going to be attractive to a buyer, but don’t only focus on price also match the seller’s needs. Do they want a quick close or a delayed closing, is a lower all cash price better than a higher price with a mortgage contingency and so on? The highest priced offer doesn’t always get the deal. If you need a mortgage, and you are going up against all-cash offers, which is likely in this market; you absolutely need to be underwritten pre-approved. This means that your bank has done all the work and only needs the sales contract and an appraisal; think two weeks, versus 45 days.
If there is interest expressed this no time to make a low offer. You want to make it a high offer so that the other interested parties may decide to not even bid. You may pay a little higher than the other side was willing to go, but you may also save yourself from getting in a bidding war with two, three, or even more buyers. In a bidding war many people show their competitive nature and will offer more than they had originally intended just to “win” the bidding war. It can be a Pyrrhic victory for the victor, then again, what looks like an above market bid now, may well be a below market amount by the end of 2022 given how fast prices are rising.
- Offer made – If another buyer has already made an offer you need to move quickly and make your own offer. You need to alert your house inspector that you may need them to do a house inspection on short notice and your attorney that they may need to turn around a contract quickly.
- Offer accepted – If an offer has already been accepted, you are not out of the game. The rule in Greenwich is that there is no deal until the contract is signed. So, if it is the perfect house go ahead and make an offer. Submit your highest and best offer, and if possible, without a mortgage contingency. Even if you are going to get a mortgage you don’t necessarily have to have a mortgage contingency in the purchase agreement. You just have to be sure that you can close if the bank financing falls through. In an absolute worst-case scenario can you get financing from a rich uncle or is there a co-signer with good credit ready to step up. If your rich uncle fails you and you’ve signed a non-contingent, there is a good chance you are out your 10% deposit, which will be deemed liquidated damages. That’s $200,000 on a $2 million purchase. Be careful, but not too careful, unless you are happy to stay in your present rental for a good while.
- Inspections completed – If the offer has been accepted and the other buyer has completed their inspection, your offer needs to be much better than the accepted offer. At this point the seller is mentally well down the road to selling the property to the other buyer, so your offer has to look significantly better than the offer they have already accepted. Your offer needs to meet all the seller’s requirements. For example, an all cash, quick close offer with no inspection and a significant price premium might do the trick.
Going without a house inspection is not a good idea, unless you are planning on tearing the house down or doing a gut renovation. Also, if the first buyer is moving to change the deal terms after the inspection that’s a red flag there may be a problem.
The buyer who wants to renegotiate after the inspection may, however, be a buyer that takes every opportunity to whittle down the price. Never under-estimate the fury of a seller that thinks they have been deceived. I’ve seen sellers take less money just to spite the “jerk” who was trying put one over on them.
If you are the first offeror don’t be that jerk. If you are the second offeror, be ready to move quickly if the other buyer turns out to be a jerk. Earlier this year, a buyer got gazumped, when the second buyer came in with a much higher, all-cash offer and no inspection contingency. The seller saw it as a no-lose deal. The second buyer waived the inspection believing that the house couldn’t be all that bad, if the first buyer was willing to go forward. They rolled the dice and got the house.
- Contingent contract signed – Once a contract is signed with a mortgage contingency control of the deal shifts from the seller to the buyer. The buyer now has the ability to call off the deal if there is a problem with the financing. The seller is bound if the buyer wants to go through with the deal. Even if you are late to the game, you may have an opening if the other buyer has a financing problem or has buyer’s regret.
Buyers, particularly in competitive bid situations may not request enough time to actually get a mortgage approval. If the other buyer has to ask for an extension, the seller has the option to turn them down and accept your offer. You need to let the other agent know that your offer is a continuing one.
- Fully executed contract – You would think that once the contract is fully executed, also known as binding, or as our MLS calls it pending, that you are out of luck, and you probably are, but people are people. If you really absolutely have to have that one particular property and price is no object you could consider paying the buyer to terminate the contract. This is very uncommon, but it can be done. Any contract can be terminated if all parties agree.
Before you start looking at ways around a contract whether a contingent or pending contract talk to your attorney. You don’t want to get involved with a tortious interference with contract claim or some other lawsuit. There are ways you can do this and ways that will almost certainly guarantee trouble.
Your best option as always is to get to the house before anyone else has expressed an interest and make a good offer first and be prepared to sign the contract quickly. If someone else got there first, show the seller that you are the better prospect and move quickly so that a third buyer doesn’t beat out both of you. Good luck!