Crazy Buyer Strategies For A Seller's Housing Market

TL;DR

Buyers in the current real estate market are implementing bold strategies such as offering high due diligence fees, using appraisal addendums, and utilizing escalation clauses to stand out, but these strategies come with significant risks.

Transcript

it's summer 2021 you know that this real estate market is absolutely bonkers here are three crazy strategies i have seen buyers use to try to stand out in a crowded market sometimes they work sometimes they blow up and every single one of these strategies is risky my explanation of them is not an endorsement and it's not legal advice so if you're t... Read More

Key Insights

• 🤱 Buyers are resorting to risky strategies in the current real estate market to stand out, including large non-refundable due diligence fees, appraisal addendums, and escalation clauses.
• 😚 Due diligence fees can be a risky move, as they become non-refundable and buyers may lose a significant amount of money if they encounter issues during the inspection phase.
• 👏 Appraisal addendums come with uncertainty, as buyers commit to covering the difference between the appraised value and the purchase price, potentially putting themselves in a challenging financial situation.
• 🥺 Escalation clauses can backfire if buyers find themselves engaged in bidding wars with other buyers using the same strategy, leading to unexpected and substantial price increases.
• ✳️ Buyers should seek advice from real estate agents and attorneys familiar with these strategies before employing them, as each strategy carries significant risks.

Questions & Answers

Q: What is the most common strategy buyers are using to stand out in the crowded real estate market?

The most common strategy is for buyers to put up large due diligence fees, often in the six figures, to demonstrate their seriousness and differentiate their offer from others. However, this fee becomes non-refundable, so buyers risk losing the money if they need to back out for any reason.

Q: How are buyers addressing concerns about properties not appraising for the purchase price?

Buyers are using appraisal addendums, where they agree to cover the difference between the appraised value and the purchase price. This strategy is risky as the size of the gap is uncertain, and buyers may find themselves in a difficult financial situation if they don't have the cash to bridge the difference.

Q: What is an escalation clause, and how does it work?

An escalation clause is where the buyer offers a base price but agrees to increase it if a higher offer is received, usually in increments. However, this strategy carries the risk of revealing the buyer's willingness to pay more and potentially getting into bidding wars with other buyers using the same strategy.

Q: What are the risks associated with using these strategies?

The risks include losing a substantial due diligence fee if the buyer needs to back out, potentially being unable to cover the difference between the appraised value and purchase price, and getting caught in bidding wars and potentially paying significantly more than initially offered.

Summary & Key Takeaways

• Buyers in the summer 2021 real estate market are putting up non-refundable due diligence fees in the six figures to demonstrate their commitment, even if they later discover issues with the property or need to back out.

• To address concerns about properties not appraising for the purchase price, some buyers are agreeing to cover the difference out of pocket, but this strategy is risky as the gap between the purchase price and appraisal value is unpredictable.

• Buyers are also employing escalation clauses that allow them to increase their offer if a higher one is received, but this strategy carries the risk of revealing their willingness to pay more and potentially engaging in bidding wars.