Local Market Trends
With limited inventory and strong buyer demand despite increasing interest rates, many home buyers are getting creative making their offer as attractive as possible. While some warning signs of a slowdown are emerging, most sales in SLO County seem to be humming right along. Below are some of the terms I am often witnessing buyers make when in multiple offer situations:
- Removed appraisal contingency: This means that even if the appraised value is less than the agreed-upon price, the buyer will not use this as a contingency to back out of the purchase. If a buyer removes this contingency, it is wise to ensure they have sufficient funds to make up any difference between the appraised value and contract price.
- Strong earnest money deposit: Although a few years ago many buyers were offering earnest money deposit money around 1% of the purchase price, many buyers are now offering 3% earnest money, which goes into escrow within 3 days of acceptance of their offer. This is because California consumer protection laws limit “liquidated damages” to 3% of the purchase price, in the event of buyer’s default or breach of contract.
- Reduced or removed investigation contingencies: The standard investigation period is 17 days, however many buyers are offering to complete investigations more quickly. In scenarios where a seller has performed physical inspections prior to sale, some buyers feel comfortable removing their contingencies altogether eliminating the likelihood of renegotiation weeks into an escrow.
- Escalation clauses: While rare, some buyers have used escalation clauses such that they will pay a certain dollar amount more than the highest competing offer, often times with a limit.
- Possession after closing: Many sellers may need to tap into their equity to purchase a replacement property and buyers are becoming more comfortable with the idea that they may not get possession of the property upon closing escrow, with free or market rate rent-backs of 1-2 months becoming more common.
If you are curious to know more about some of these offer terms and how they often play out, please don’t hesitate to contact us. Call Graham at 805-459-1865 or email [email protected].