The Massachusetts South Shore Real Estate Blog: How to Approach Low Inventory to Thaw a “Frozen” Market
Anyone with familiarity with today’s market undoubtedly knows that we are in a period of low inventory. This week, we’re going to look at three strategies that allow Buyers and Agents to help thaw an otherwise frozen market.
One Day Exclusive Listing Offers:
Ordinarily, a Buyer’s Agent will search the MLS looking for homes that meet their Buyer’s requirements within a given area. Due to low inventory, very often there are few homes to show a Buyer. In this situation, an Agent should consider what’s known as a “one day exclusive listing agreement.” Very simply, the Agent will send a letter, often as simple as a post card from your local office supply store, stating that they are an agent with a Buyer who is interested in homes in the area. The Agent will represent list the recipient’s home for a single day to allow for an offer from their Buyer to be submitted. Even if the Buyer does not make an offer, very often the Seller will ask the Agent to list their house because their mindset has shifted. The Buyer is able to see more houses, the Seller is spurred to list their house, and the Agent either Sells a house or gets a listing: this is a truly a win, win, win situation.
Negotiate a Home Sale Contingency:
Many Buyers are sitting on the sidelines waiting for inventory to increase. The problem is that many of these Buyers are also would-be Sellers. To increase inventory, Buyers who also need to sell should consider including a home sale contingency with their offer to mitigate the risk of not being able to sell their home. That said, not all home sale contingencies are created equal. There are generally four types which expire at different points of the sale process: 1) the Seller becoming party to a signed offer, 2) the Seller becoming a party to a signed purchase and sale agreement, 3) the Seller’s Buyer receiving their mortgage commitment, or 4) the Seller closing on their sale and receiving proceeds. An Agent guiding their Buyer should define precisely which type of home sale contingency they are seeking. The spectrum of possible contingencies shifts the risk from the Buyer to the Seller. In a Seller’s market, it’s unlikely that a Seller will agree to number four. Number one generally leaves the Buyer too exposed: the Buyer’s buyer may terminate after conducting a home inspection. Generally, number two or three is a fair option that Buyers and Sellers can accept. Be aware that a Seller may send a counter offer with a “Kickout Clause.” Generally speaking, a kickout clause allows the Seller to continue listing the house for sale, during which time the Seller receives a bona fide offer that is higher than the Buyer’s offer, the Buyer is given a defined period to either waive the home sale contingency or exercise their rights under the contingency to terminate the Agreement. For more information on kickout clauses, read our article, The Offer Part 2 – Contingencies for Sellers to Consider.
Negotiate a Suitable Housing Contingency:
Many Sellers are sitting on the sidelines waiting for inventory to increase so that they can find their next house. Some homeowners simply prefer to Sell before they buy. Buying before selling comes with the risk of not being able to find a home to purchase before having to Sell. As with sale contingencies, not all suitable housing contingencies are created equal. A suitable housing contingency generally expires at one of four points: when the Seller 1) signs an offer, 2) signs a purchase and sale agreement, 3) receives a mortgage commitment, or 4) closes on their purchase. Usually, Buyers will accept numbers two or three, as they fairly spread the risk between the Buyer and Seller. The benefit of spreading the risk is that Buyers that would otherwise wait for inventory to increase before listing will be willing to list and sell their homes, increasing inventory generally.
Above all, Buyers and Sellers who are motivated to move need to accept some degree of risk. Thinking creatively will help to increase inventory in this period of high demand. While not a panacea, the three strategies that we’ve listed will help to thaw today’s frozen market.