Tyler Frank,
Paramount Mortgage
NMLS ID 942420
Housing Boom Era Type Home Buying Tactics Reappearing in St Louis Real Estate Market
During the home buying frenzy of the housing boom, which peaked in 2006, it was common to see home buyers, in an effort to beat out other buyers fighting for the same home, include price escalation clauses in their offers and make “naked” (contingency-free) offers. It was also common for a seller to purposely price their home low in an effort to rein in multiple buyers and pit them against each other in a bidding war. We are now seeing this all again as buyers compete to buy homes from an inventory of homes for sale that has shank dramatically in the past year.
St Louis Inventory of Homes For Sale Down Almost 9 Percent in Past Year
The inventory of homes for sale in St Louis has declined 8.9 percent in the past year leaving a 3 month supply of homes for sale in the metro area, according to recent data from MORE, REALTORS.
Strategies Being Used By Buyers To Compete
Contingency-free and contingency-light offers. Some agents say these are almost routine for buyers determined to win a bidding competition. They call them “unprotected” contract offers.
Essentially the idea is to strip away some or all of the customary contingencies in an offer that might irritate a seller or render the buyer’s bid less attractive. The financing contingency, which makes the entire transaction dependent on the buyer obtaining a satisfactory loan and appraisal, often is the first to go if the bidder is confident of qualifying for a mortgage, has been preapproved or is willing to pay what could be a lot more than market value.
Many buyers also are willing to delete the inspection contingency, which many agents consider much more risky, because the bidder agrees to fly blind with no way out of the deal if costly defects – tens of thousands of dollars’ worth potentially – later arise. As example, buyers who have waived the inspection contingency and later discovered sewer lines clogged with roots and a chimney cracked so badly that it was condemned.
Escalation clauses. These are add-ons to contract language that keep bidders in the competition, even when the price soars well beyond the original asking amount.
Typically the bidder agrees to match and exceed any verifiable, bona fide competing offers by set increments – say, $500 to $1,000 – up to some maximum amount.
The upside: Properly used, they work. Bidders with the highest maximums often get the house.
About the author: Tyler is Paramount Mortgage Company’s general counsel as well as a licensed mortgage loan originator. Tyler is a 1999 graduate of the University of North Carolina at Chapel Hill where he was a member of the university’s Dean’s List. He received his J.D. from Washington University’s School of Law in 2002 and is a member of the Missouri Bar Association and the Illinois State Bar Association.
Tyler is “big brother” mentor and role model to a young man through the Big Brothers Big Sisters of Eastern Missouri. He is a member of the St. Louis Sports Commission’s Associates Board, the University of North Carolina at Chapel Hill’s Alumni Admissions Committee and Mary Institute and St. Louis Country Day’s Alumni Executive Committee. In 2012, Tyler successfully summited Mt. Kilimanjaro (19,341 ft.) in Tanzania, Africa, and ran his first full marathon.
Tyler can be reached by email at tfrank@paramountmortgage.com or by phone at 314.372.4313.
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