Last Updated: June 28, 2021

Sellers, Don't Count Your Chickens Yet

Written By: Barbara L. Pearce
Tiny toy chicken placed on top of an egg

Contingency-free offers

Just in the last few days, we've started to see homes in Greater New Haven come back onto the market, after a sale fell through. When we think about how many offers now are made without contingencies, in order to improve a buyer's chances of winning a multiple bid situation, the percentage of DFTs (deal fell through, as we call them in the trade) is actually higher than it appears. People who made contingency-free offers did not always leave themselves wiggle room to get out of a contract, so that the sellers likewise couldn't get out. Those contracts would therefore be sticking, meaning that the 80% or so of sales with contingencies are producing 100% of the DFTs.

Why would that be happening?

There is always some amount of buyer's remorse. That house you were bidding on the night before doesn't seem as great in the light of day. However, it is likely that more homes are coming back onto the market because the buyers can't perform. Either they can't borrow enough money--maybe they bid too high in the last round of negotiations, or maybe they never had quite the credit they thought they did--or it's just coming at higher rates, as rates are inching up. Sometimes it's fees, or flood insurance, or repairs that will cost more that ends the deal.

In weaker markets, many of those contracts would be adjusted downward by both parties, especially if there are major defects that come to light, or if the home doesn't "appraise out" at the price being paid. That can easily happen in a rising market, because appraisers can only use closed sales, so current contracts at higher amounts can't be counted. In this time of short supply, the sellers are more likely to put the house back on the market, and try to resell it at a comparable price.

When one house has this problem, it can also cause a domino effect, where several homes each depend upon the buyers selling their previous house. One transaction can ripple through other sales. Even if a sale sticks, a lower price may lower the equity available for the next purchase.

What does all this mean?

It means that the market is beginning to show the downside of rising prices, where buyers face hard upper limits on what they can pay. Sellers should remain flexible, roll with the punches, and not get greedy. A deal that seems too good to be true may be just that. If everyone works together, a good result may occur for all parties.

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