Home buying has become intensely competitive in some of the nation’s top markets. Over 1 in 3 homebuyers made an offer on a home last year sight unseen, while home sellers are expecting shorter closing windows and more lenient closing terms. None of these is news. Now, we have another new data point.
According to ValueInsured’s latest Q2 2018 Modern Homebuyer Survey, 21% of all surveyed homebuyers have experienced a failed sale transaction due to what they consider to be “unrealistic seller’s demands,” including waiving contingencies, cash-only offers, and fast closing. 26% of millennial first-time homebuyers and 30% existing starter-home buyers surveyed report to have experienced these sellers’ demands that they believe to have derailed a potential sale.
It is subjective what constitutes as “unrealistic” demands, however, a look at a recently published homebuyers’ “survival guide” in the hot Seattle housing market offers a peek into what some homebuyers could be faced with. The guide includes some sellers’ expectations apparently now considered “standard” in Seattle, according to the reporter:
- Waiving financing clause
- Waiving inspection clause
- Waiving appraisal
- Waiving title contingency
- Fast closing, followed by slow moving – this one is interesting, it stipulates that buyer closes on the home sale quickly, but agrees to a delay in moving in, allowing the seller to stay living in the home after it has been sold as the buyer/new owner’s tenant for a period of time, often for 60 to 90 days or longer.
It is worth noting that in ValueInsured’s survey, homebuyers who report to have experienced a failed sale due to unrealistic seller’s demands also report themselves to be otherwise ready and financially viable to afford the home purchase. When millennial homeownership is at record low for the most part due to affordability issues (79% millennial non-homeowners want to buy a home), it is substantial that 26% of all financially able millennial first-time homebuyers did not get to buy a home they wanted and could afford.
Similarly, when 30% of existing starter-home owner want to upgrade but cannot – or were delayed – due to unconventional sellers’ demands they could not meet, it adds to the severe bottleneck we have in the housing market, with record-low inventory particularly at the starter-home level. Imagine a neighborhood where 1 in 3 could be for sale, but are not when their owners are stuck and cannot transition into their next home. The vicious cycle continues, home prices in these markets continue to skyrocket due to low inventory, as income growth and inflation fail to keep pace.
On the flip side, let’s not ignore the fact that sellers are increasingly making demands because some buyers are willing to accept them. Some overheated markets in the country have long entered the housing hysteria stage, where buyers ignore assessment of overvaluation, and warnings by experts – and former Fed chair – that they could be buying at market peak before the next recession in 2020. Home buying is emotional; who could argue with a buyer who believes that if you love a home and could afford it, ignore the experts and go for it. However, when you are buying without a home inspection, without an appraisal or below appraised value, or even without a clean and clear property title, can you really enjoy that home with peace of mind? If you are buying such a home in a peak market and without some level of protection, the stakes become extremely high, and the risk exposure could be irreversible.