The Latest Crazy Market Paradigm

Hi everyone!  Hope this post finds you well and I hope you’re planning on either buying or selling your home AND calling me first.  It’s a huge market out there and with an interest rate hike looming, it’s likely to get bigger, faster, busier. Crazier is probably a better word.

We’ve talked about how you can’t even get the offer on the table for consideration before the home goes under contract and now homes are selling BEFORE they hit the market.  Multiple offers have become the norm and it is a STRONG seller market.  Home prices are rising and builders are busy again.  Good to see.  But there’s something new and again, we need to be careful about this.

Sellers are demanding shorter due diligence periods in a market where getting immediate inspection services…for home, septic, well, HVAC, pests, roof…is impossible.  In some cases there’s a two week lead time to get someone out to inspect, and some sellers are asking for a three week due diligence period.  Impossible.  What this does is put undue pressure on buyers who are already incredibly busy getting loan approval and meeting all of their obligations as buyers.  Ultimately, it’s not good for the seller either; they end up with days to get repairs done, rather than weeks, so the stress boomerangs right back on them.

It’s hard to get through the due diligence period, followed by an even more difficult repair negotiation.  Let’s not be stupid about this.  Nobody’s losing anything if the home is under contract with a financially strong buyer and the home is well maintained.  Relax and give the buyers a chance to do their due diligence!  Agents, remember when you agree to this short due diligence period, you could very well be asking for an extension and your buyer might have to fork over more due diligence money.  The seller has a right to ask for it.

Due Diligence in Real Estate

:  the care that a reasonable person exercises to avoid harm to other persons or their property
:  research and analysis of a company or organization done in preparation for a business transaction (as a corporate merger or purchase of securities)
That’s the Merriam Webster definition.  Neither really clearly defines the way due diligence works in real estate, but it’s a period of time the buyer ‘buys’ to do inspections…all of them…and also to get their loan application done. Usually takes about 45 days.
I’m finding that buyer clients are not usually clear on how this works…and neither are listing clients most of the time.  But Due Diligence in real estate is the period of time the buyer uses, and pays for, by the way, to search through the nooks and crannies of a home…and pay for inspections of them…before taking the step to actually put both feet in the game.  Buyers can spend a lot of money during this time, and a lot of stress equity wading through the inspection results.  During this period, buyers can walk away for any reason…or NO reason…and stand to lose only the money they invested in due diligence fees and inspections.
Buyers, particularly first timers, usually get very upset when they see the inspection report, even if they’ve been told what to expect.  Here’s how it goes:  The older the house, the longer the report.  The longer the report, the more freaked out everybody gets.
I have decided it’s all about expectations.  Bottom line is this: Don’t expect an older house to have a three page inspection report.  Older houses have older house issues, not the least of which is that it’s not a new house.  It’s a great idea to have this conversation right up front, even before you find ‘the one’ that the buyer wants to make an offer on.
Anyway, the buyer benefits greatly from this period of inspections, but the seller needs to be aware that if a ‘disclosure’ issue is uncovered during inspections, they must then either disclose the defect, or repair it.  And it’s a no-brainer that it’s better to do the repair.  Are we hearing dollar bills rustling, or is it just me?  Oh, and the seller can also take the house off of the market, by the way.
So bottom line is this, I’m thinking:  Buyers need to have clear expectations of the inspection results based on the age of the house, and sellers should have a home inspection done, including the crawl space, before they list.  That way nobody gets surprised.
Scratch that.  Everybody gets surprised.  It’s real estate.