You find the house of your dreams, your agent writes an offer and the seller accepts it. You think you've bought a house but in some cases you have not. Your offer will have contingencies that protect you, the buyer, such as engineer's inspection, mortgage contingency, transfer of existing property and the all-encompassing attorney approval.
It's a seller's market
Over the past year we have changed from a "buyer's market" to a "seller's market" and this can have a direct effect on buyers. What is a "seller's market" and what causes it? Supply and demand. Over the last several years most people with mortgages locked into historically low interest rates and are thus reluctant to sell and experience a higher rate; resulting in a low inventory of available homes for sale. The problem is compounded due to the forecast of rising rates this Fall and buyers trying to beat the increase. Read here for currentnational trends.
The following scenario is common: The house you've identified is listed at $199,900 and there are multiple offers. Your agent advises you to write an offer for $205,000. You immediately wonder who the agent is working for and instead write an offer for $195,000; the seller accepts, clearly you are smarter than the agent. Three days later you receive a call from your agent telling you that the seller's attorney (at the direction of the seller) disapproved the contract and accepted another offer. You just got, what is called, 'bumped'.
"Why?" The contingency that is intended to protect the buyer also gives the seller certain protections and leverage. While you are in the "engineer's inspection/attorney approval process" the seller could receive a higher offer and advise their attorney to disapprove your contract. Is it ethical or fair? If you are the one losing the house, you probably think, "No!" But like it or not, your offer is dead. The seller's agent is compelled to represent the interests of their seller; the attorney does not need a reason to disapprove a contract.
Double Check Terms Before Signing Offer Letter
In some instances the seller may instruct their agent to give you an opportunity to match the new offer but don't count on it. "Terms" often come into play, and this is where you can give yourself a competitive advantage. Quick closings (under 45 days) are attractive. While an engineer's inspection is always a good idea, it is often a way for buyers to get out of a contract. Based on the age and condition of the property you may decide to forgo the inspection. You'll be giving up a safeguard but eliminating an objection.
Agent & Mortgage Firm Matters
Real Estate Agents will have different approaches on how to combat the above situation but a piece of advice is to ask the seller to waive attorney approval or shorten the time-span, giving the selling agent less time to secure a higher offer. When the market changes to a "seller's market" in really amplifies the value of a good agent - and when push comes to shove a good mortgage firm as well.