By Swapna Venugopal Ramaswamy and Terry Collins
Prepare for a buyer’s market? In many areas of the U.S., it’s already here. Contingencies are not only back, more buyers seem to cancel deals for fairly thin reasons.
NEW YORK – Real estate agent Shay Stein remembers not too long ago when buyers pledged to name their firstborn after homeowners to get to the closing table.
Now, buyers are increasingly asking for closing costs, repairs or, in some cases, insist on the availability of street parking or they’ll walk, Stein and other agents say.
“Last year, they were making offers within two hours of the house being listed, and now they’re visiting the home multiple times and asking for all kinds of things,” says Stein, a Las Vegas real estate agent. “It’s like whiplash.”
It’s a change for buyers – and a rude awakening for some sellers – prompted by a slowing real estate market where available houses sit longer and sellers cut prices as interest rates rise.
Nationwide, roughly 64,000 home purchase agreements fell through in August, equal to 15.2% of homes that went under contract that month. The percentage has now hovered around 15% for the past three months, according to a recently released Redfin report.
Existing home sales fell 0.4% in August, marking the seventh straight month of declines and sliding 20% from the same month a year ago, according to the National Association of Realtors.
Meanwhile, the median home price, while still rising 7.7% in August on a year-over-year basis, fell 6% in the past two months.
“The pendulum has swung the other way,” Stein says. “Now the buyers want all of the reassurances and contingencies.”
Why are buyers backing out?
Rising mortgage rates are the biggest reason, experts say. The average rate for a 30-year fixed-rate mortgage increased to 6.07% for the week ending Sept. 29, according to Freddie Mac’s Primary Mortgage Market Survey. This time last year, the rate stood at 3.01%.
According to the report, homebuyers were most likely to back out of deals in Sun Belt cities that surged in popularity and price during the pandemic, such as Phoenix, Tampa, and Las Vegas.
In the past few months, Stein says, she has heard every excuse.
“They’ll say, ‘I checked the school district, I don’t like them anymore. I didn’t realize that this room was so small,” she says. “Or they back out because the home is old.”
Las Vegas agents Michele Dugan and Trish Morgan-Tilley say would-be out-of-town buyers scoop up multiple properties sight unseen and “choose or lose” when they arrive. They estimate that 20% to 30% of buyers now exercise contingency options.
“They pick one property and reject the others, baling on the littlest things, like if something isn’t fixed,” Dugan says.
Morgan-Tilley says one buyer backed out after learning the garbage disposal had a small leak, an easy fix. But the buyer “made a mountain out of a molehill.” And the buyer didn’t offer the seller a chance to fix it.
And, of course, some buyers give the all-too-common big one, she says: “I just really don’t like it.”
Chasing ‘the bigger, better deal’
Shauna Pendleton, a Realtor in Boise, Idaho, saw her client’s contract fall apart when the buyer insisted on getting a credit of $7,000 on the agreed-upon purchase price to do some repairs themselves.
The buyer cited a leaky AC condenser and some floor damage.
The sellers disagreed with the buyer’s assessment of the repairs and dug in their heels.
“The buyer walked away,” she says. “Every single house that I’ve closed in the last few months have asked for inspections, and there are anywhere from 10 to as much as like 20 items that the buyer wanted fixed. And they’re little things like teeny tiny little things that don’t affect living in the house.”
Morgan-Tilley says one buyer in Vegas fled after seeing a homeowners association rule about parking.
“He said: ‘Oh, but I have to park on the street. It’s a must,’” Morgan-Tilley says, laughing at the recollection.
It’s not uncommon for a buyer to be at an inspection and see that three new homes at better price points have popped up, Stein says. “There’s also the bigger, better deal mentality,” Stein says. “I think buyers are driven by fear and uncertainty, and the inspection is just the easiest thing to use.”
Pendleton says one prospective buyer insisted that the seller replace a light bulb in the bathroom inside the master bedroom. Another demanded the dusty and slightly grimy glass panel covering a gas fireplace be replaced or cleaned so that it was “crystal clear.”
“If you’ve been under contract for two weeks, given how quickly the market changes, the seller doesn’t want to go back on the market,” she says. “So the buyer knows that they can get away with asking for these things.”
What does waiving a contingency mean?
The recent ultra-competitive housing market forced buyers to waive inspection or financing contingencies – conditions required to be met before the home is purchased – and make decisions that may not have been in their best interest.
An in-person housing inspection may be a lifesaver for buyers, said Suzi Dailey, a real estate agent based in Southern California. She said her clients, a couple with three kids who recently sold their $2 million home to buy a bigger house at a similar price range. They were in escrow but backed out of a deal in August after an inspection revealed a neighbor’s shed and fence were 15 to 20 feet over on their would-be property.
“That’s a substantial amount,” Dailey said. “So we asked the seller, ‘Can you work this out for us?’ Because as a buyer, you don’t want to get into any legal problems.”
Dailey said her clients wanted the seller to get it taken care of either through an easement (permitted use of someone’s property) that would slightly reduce the selling price, create a redrawn property line, or move the fence and shed back.
“The seller refused to make any changes, so my clients walked away. The seller was astonished,” Dailey says, adding that her client is living in a rental home as they continue looking. “Making fixes can make a huge difference – in some cases, a multimillion dollar difference.”
What’s a seller to do?
Sellers can help get buyers (and themselves) to the closing table. Get a pre-inspection prior to listing and complete needed repairs and service HVAC systems, Pendleton says.
“Sellers should expect a buyer to ask for repairs, even if minor, and be willing to make the requested repairs as buyers are not negotiating inspection items right now,” Pendleton says. “They want it all done.”
Be flexible when it comes to buyers’ requests during an inspection or appraisal, Stein says. “Not taking it personally and understanding the buyer’s perspective helps cooler heads prevail – leading to more successful closings.”
Some sellers may just have to wait it out. Dugan recalls a client who took his downtown Vegas condo off the market after going through four failed deals – all because buyers kept exercising their contingency option.
“He fell victim over, over and over again, just as we were getting close,” Dugan says. “Finally, he said ‘Let’s just wait a while.’”
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