One sure and empirical statement that can be made about the real estate business is that there are always those who figure out ways to trick a transaction into their favor.
While not particularly new, here's one of those tricks that has been rediscovered by sellers, and how those sellers are attempting to circumvent the obvious fallout their "trick" is likely to create.
It is the purposeful under pricing of a home in a tight market so that a bidding war among prospective buyers will be created.
The hope is that the house will sell for more than it would have brought had it been priced correctly, and had past contractual listing contract terms been interpreted by the courts that the owner was honor-bound to sell at his listing price; he could only negotiate lower offers.
So what we have are mini-auctions. Real estate sales, ebay style.
That brings on prospects who are encouraged by their agents to turn in contracts that are outrageously high, depending that their lender will turn down their mortgage loan because of the appraisal, and the owner will be forced to compromise the price to what the house is really worth.
The idea is to use the bogus contract to trump all of the other offers.
One large real estate firm is encouraging its listing agents to require that any contract that is in excess of the listing price will have additional verbage in the earnest money contract, similar to this:
"If the buyer's lender's appraised value is less than the price offered by buyer, the buyer agrees to make up the difference by increasing their cash down payment in an amount equal to or greater than the shortfall."
Keller Williams Dallas Premier