Real Estate Contingencies Become Normal in a Balanced Market

Real Estate Agent with RE/MAX Executive Realty 91362

Over the last few years, real estate markets have heavily favored home sellers. That is now changing as many markets are shifting.

What consumers need to keep in perspective is all real estate is local. The National real estate headlines you read may not correlate as well with the local market.

In several areas of the country, real estate markets favor buyers. In others, sellers are still in the driver's seat.

There will also be places where the market is balanced, with neither buyers nor sellers having an upper hand.

Without a doubt, the volume of bidding wars has fallen off the map. With interest rates having doubled, buyers have said enough is enough.

The rising rates combined with sky-high inflation have caused markets to shift around the US.

With no bidding wars and a more balanced market, normal conditions in an offer are reappearing. Chief among them are real estate contingencies.

Common Real Estate Contingencies Are Back

With bidding wars ruling the real estate landscape for the last few years, many common contingencies in real estate contracts were removed.

To land the home they want, buyers were forced to remove the home inspection contingency, appraisal contingency, and in many cases, their mortgage contingency altogether.

Being a buyer was not fun. Working as a buyer's agent was also not pleasant. Imagine writing a dozen offers all over the asking price without getting a home. That's precisely what was happening for many buyers.

Sellers just sat back and enjoyed what was going on. Times are changing for buyers and sellers.

What Home Buyers Can Expect Now in Many Areas

There will be far fewer bidding wars, especially in places where the housing inventory has increased significantly. Lack of inventory has been the chief factor in bidding wars and escalating home prices.

Buyers can now put contingencies back in their offer to purchase without feeling like they will lose the house to another buyer.

This is a shift from recent years when bidding wars heavily favored sellers. Now, with a more balanced market, normal conditions in an offer are reappearing.

What Contingencies Likely Won't Be a Problem to Purchase a Home?

You can expect that you will be able to put the following conditions back into an offer without feeling like the seller won't take your offer seriously.

Home Inspection Contingency

You will be allowed to inspect the property again. Waiving your home inspection won't be necessary to land a house. The home inspection will typically take place 7-10 after your offer has been accepted.

In a balanced market, you may be able to get some concessions out of a seller. However, you will need to be reasonable with your requests. Ask for significant problems to be addressed. Don't ask the seller to make the house perfect.

You will likely ruffle some feathers, which you don't want to do. The sale is likely to fall through if you're unreasonable. Don't think a shift in the market means you'll get carte Blanche.

Appraisal Contingency

In a hot real estate market favoring sellers, the home appraisal contingency was just about extinct. Most sellers were looking at either a cash offer or one in which the buyer agreed to appraisal gap coverage.

An appraisal gap clause stated that a buyer would agree to make up the difference between the purchase price and a low appraisal. Buyers would need to come up with additional down payment funds to satisfy the lender.

In balanced markets, it is unlikely an appraisal contingency will be rejected.

Mortgage Contingency Clause

In areas of the country where homes were getting dozens of offers, adding a mortgage clause often was a kiss of death. Cash sales are king. Many sellers would put offers with a mortgage clause at the bottom of the pile.

That won't be the case anymore. You can put in your mortgage contingency as you used to without feeling it will be a strike against you.

The Escalation Clause Will Be Far Less Common

One of the more common clauses in a real estate contract for the past few years has been an escalator. An escalation clause says that a buyer will agree to trump the highest offer by a certain amount. There would also be a cap on how high a buyer would be willing to go.

The escalation clause was an excellent tool used by savvy buyers and their agents to improve their chances of winning a bidding war.

With fewer bidding wars, the need for an escalation clause will go away.

There Will Be More Negotiations Before and After Contract Acceptance

Working as a seller's agent for the last few years was a dream come true. There was very little negotiation on anything. You didn't get the house if you didn't do what the seller wanted. It was that simple.

Now, sellers and their agents must be prepared to return to work. There will be more negotiations on the price, contingencies, closing date, etc.

After the inspection, there could be further negotiations. Sellers can no longer expect buyers to accept their property "as-is."

Final Thoughts

It cannot be emphasized enough that all real estate is local. Local market conditions will influence buyers' and sellers' decision-making processes.

Relying on a real estate agent for guidance will become more essential. In some areas where the market is strong, buyers will still come with a solid offer to land a home.

There will be pockets in the market with low inventory. Where these conditions exist, there is still a strong possibility of having multiple offers on a property.

Buyers will need to keep this in mind as they move toward landing their dream home.

Posted by

Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comments (2)

Virginia Hepp - Mesquite NV REALTOR
Desert Gold Realty - Mesquite NV Homes For Sale - Mesquite, NV
Mesquite NV Homes and Neighborhoods - Search MLS

Yes, we are back to work!

Nov 03, 2022 06:54 PM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

To be honest, I'm glad we are coming around the bend from the hot seller's market where it was nearly impossible for some buyers to have even a slight chance if they were VA or FHA buyers and being up against Conventional and CASH buyers.  It definitely is local ... and now sellers must rely on their agent and not "what their neighbor's house sold for!"

Nov 15, 2022 11:51 AM