Contingencies? We Don't Need No Stinkin Contingencies
As a lot of you know, we are still at record low housing inventory, which is very annoying in what should be the height of the buying season of the Summer months. So, I thought it would be fitting to pass on a very relevant piece of negotiating tactic in this seller's market with a line from one of my favorite movies, Blazing Saddles. Sellers are all saying the same thing, Contingencies? We Don't Need No Stinkin Contingencies.
It sums up what buyers are faced with today. While in a normalized market of 3-4 months of inventory, sellers are very happy to get an offer and maybe a few at that. However, with 1 - 1.5 months of inventory currently, sellers are fielding many offers from many buyers that are dying for a home in their market of choice. Being so, the only way to compare and choose the right offer for their home is by the price of course, but also the lack of contingencies in the deal.
Buyers are regularly shortening the inspection contingency to 7-10 days. That has become somewhat of a norm now. But, the coveted loan condition, which in California is a standard 17 days and sometimes longer, is being dropped or reduced in order to win a home.
I typically advise my clients against dropping the loan contingency completely as that truly puts their earnest money at risk and that decision in the hands of a lender that seems to be trying as hard as they can to not approve the loan. However, when my client is coming up with a sizable percentage of cash, with the loan to value being somewhere close to 50-60%, pre-approval for the loan amount by a lender that will actually lend on the home, and the purchase price of the home being right in with the comparable solds in the area, I have advised to drastically shorten the loan contingency in these particular cases, as the risk is greatly mitigated.
Some buyers are finding the ability to come up with all cash to set them apart, thereby ridding the issue of the loan contingency entirely. They then will finance the home after purchase, away from the risk of loosing the deal.
There are many instances in the market I work (Agoura Hills, Oak Park, Westlake Village, Thousand Oaks, Calabasas, CA) where higher offers are passed over for lower offers that lack certain contingencies, namely the uncertain loan contingency. Strong indication that certainty of close and lack of trust in the current lending environment are of upmost importance to sellers today.