It seems everywhere you turn in Williamson County, the real estate market is hot. With COVID-19 wreaking havoc, many sellers have hunkered down and decided to not sell their homes, whereas in the past they likely would have. This is a major part of the reason there is an inventory shortage in the area. Now, I was just OK in economics at school, but one can be just OK in economics, and still understand the simple law of supply and demand. The lower inventory levels, along with desirable schools and communities, have created higher demand for homes in Williamson County.
Many buyers find it frustrating to try and purchase in this type of market. That is quite understandable. Buyers quickly and often realize they are competing for the first position contract on any home they are interested in purchasing.
There are way too many factors to discuss in this one article regarding everything a seller will consider when they receive multiple offers. The one topic I would like to discuss is home sale and closing contingencies.
It seems like every single week I have this conversation with clients. After establishing their needs and wants or even quickly identifying a particular home they like, I then turn to “the how.” How are we going to make it happen? We can look at homes nonstop, but what happens when they find the one they want to purchase?
Do you need to sell your current home to purchase another one? That is the question that often hits the hardest to buyers. As real estate professionals, we know this single issue is front and center in how competitive or how attractive a buyer is or will be to a seller during multiple offers. To be honest, many buyers can get offended or upset when pushed on this issue. It’s a major pressure point in an already crazy real estate market. What we know in the business is that a buyer who cannot purchase without first selling, is almost always going to lose in multiple offer situations. (Never say never, but almost always.) This buyer must make an offer with contingency language stating …
“This contract is contingent on the sale and closing of buyer’s current home located at 123 XYZ. Should this property at 123 XYZ not sell and close by the closing date on this subject property, this contract on subject property shall become null and void and all earnest money shall be returned to buyer unless all parties agree to extend this contract on subject property in writing.”
Allowing this contingency can be quite risky for a seller. Therefore, if a seller has multiple offers on their home, most of the time an offer with a sale and closing contingency will not be the “winner” per se. This contingency truly boils down to who is absorbing the risk.
What do I mean by “absorbing the risk?”
Buyer: “Yes, I do have to sell my home before closing on another one. However, my home will sell so fast; everything in my neighborhood does.”
Most sellers and listing agents will respond with something like this: “Then you should absorb that risk if things are moving so quickly where you are. In other words, by your statement, you should feel confident in not having a contingency on the sale of your current home.”
It's not hard to see how a seller feels when they have other offers / opportunities that do not have the added risk of this type of contingency.
So what is the solution?
Many times buyers can qualify to purchase another home without selling their current home. Some buyers have the stomach for this and many do not. It’s all about what is most important to the particular buyer. I usually recommend the buyer consult a good mortgage company to see what exactly they can do.
Some buyers will go ahead and get their current home listed and then purchase after it closes OR attempt to offer with a contingency on the ”closing only” of their current home. This is still risky for the seller to accept. Many times in this scenario, the buyer will take the risk themselves that their home will close and not ask for that contingency. There are contractual issues they must consider in attempting this path, as well. In conclusion, sellers are going to most likely choose the least risky deal that provides them the terms most attractive to them.
Buyers need to be understanding and try not to get upset at the reality of the real estate market. There are many more buyers than sellers. Economics 101. It is just the real estate world we are in. There will be a day in the future, at some point, when the tables will turn in the buyer’s favor.
Being prepared and having a solid plan with a good real estate professional is the key to navigating our current real estate market in Williamson County.
Chip Kerr is the founder and manager of Kerr & Co. Realty in Franklin, Tennessee. He is a Williamson County native and has been a licensed agent for almost 20 years.