Study: More Buyers Nix Inspections as Bidding Wars Heat Up
SEATTLE – About one in five offers (19.9%) buyers submitted to sellers using Redfin agents in select major U.S. markets waived the inspection contingency in June, according to Redfin. A year earlier, it was 13.2%.
Of those offers, 20.6% were accepted by the seller, up from 17.4% one year earlier.
Waiving inspection contingencies is a strategy some homebuyers use to make their offers more competitive, though it can add risk to the transaction. However, it also helps reassure sellers that the deal will close without unforeseen hiccups and negotiations.
An inspection contingency allows buyers to cancel a purchase or request repairs if they find an issue during the inspection period, subject to any terms in the contract. The appraisal contingency usually allows a buyer to cancel a transaction or renegotiate the price if the appraisal comes back lower than an amount specified in the contract.
When an appraisal contingency is waived, the buyer must have enough cash to cover the difference between the appraised value and offer price.
Bidding wars have been increasing recently, in part because mortgage rates fell below 3% – the lowest level recorded in at least 50 years. There’s also high demand from buyers, many of whom were in the market and facing limited inventory before the pandemic spread. Active listings – the number of for-sale homes at a given time – dropped 20.7% year over year in June, the 10th-straight month of declines.
“I put a house on the market the other day and within about 24 hours I already had 42 showings booked,” said Lindsay Katz, a Redfin agent in Los Angeles.
Waiving contingencies wasn’t the only way buyers tried to make their offer stand out. About 20% of the agents said a personal letter from the buyer to the seller has helped them win a bidding war in the past. A similar share said that a good relationship with the listing agent came in handy, while 8% mentioned rent-back agreements, in which the buyer rents the house back to the seller after closing – sometimes without charging any rent at all – to give the seller ample time to find their next home.
A handful of buyers also used unorthodox strategies. Ken Wile, a Redfin agent in Westchester, N.Y., says his buyers beat out five other offers not only because they submitted the highest bid, but also because they agreed to adopt the seller’s chickens.
“The market was totally dead during the first two weeks of March, but since mid-April, the phone has been ringing off the hook,” Wile says. “Now everyone is prepared for a bidding war.”
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