I just sent my client letter out talking about the lack of inventory and how we need to use contingencies in contracts more – which was a common feature of the “normal” housing market we’re trying to return to. The greatest frustration for everyone in the recovering housing market is the lack of inventory. Not enough homes are coming on the market to satisfy the huge, pent-up demand. I’m writing an article to explain what can be done to change this. Here’s Part 1.
Want More Inventory? Create More with Contingencies
Most sellers put their home on the market intending to buy another home. So, most sellers are also buyers. This simple fact underpins the use of contingencies.
Before the crash of 2008, it was standard across the country to have a contingency clause in a sales contract that made the sale contingent on the seller finding suitable housing as a replacement. In return, buyers would make their purchase contingent on closing the sale of their existing home.
This existed for decades as a fundamental element of the real estate market. Most transactions would contain contingencies for both sides. For the market to become truly normal again, sales contracts have to return to their pre-crash state, with contingencies that protect sellers and buyers from damage if additional, outside transactions fall through.
It Begins with the Seller
Would-be sellers today are afraid to put their homes on the market because of the limited inventory. If they sell their home and can’t find another one, they’re suddenly homeless.
Agents must start pointing sellers to the time-honored solution: list your home for sale contingent on securing a suitable next home.
In drawing back from listing their homes, sellers are creating their own demise with a shortage of inventory. It’s a vicious cycle, and it can only be broken by the use of contingencies. Inventory can only grow, and more homes come on the market for sale, when sellers find themselves protected again by these decades-old practices.
But contingencies work for both sides. A seller protected by a suitable-housing contingency should also be willing to consider granting a sales contingency that allows the buyer to complete the sale of their existing home.
Agents preparing new listings have to explain to their sellers the crucial need for these contingencies. Most importantly, sellers have to understand why it is that buyers asking for sales contingencies can actually be their best choice among competing offers.
— Stay tuned for Part 2: What About the Buyer? I’ll explain what sellers should look for from buyers who ask for a contingency. What makes a contingent offer even stronger than a cash offer? How does the seller’s agent determine how strong the buyer really is? All this and more, coming next.
