Posted in: Buying a home, Getting a mortgage

Ask an Edina Realty Lawyer: How can buyers navigate today’s ultra-crowded market?

How can buyers legally stand out in a crowded market?

Homeownership can be complicated, but we also think it’s one of the most rewarding ventures out there. In our series, Ask an Edina Realty Lawyer, we are hoping to demystify some of the trickier aspects of buying, selling and owning a home.

You may have heard stories recently about the real estate market and the competition among buyers due to persistently low inventory. In this edition, our lawyers answer some questions that buyers are raising in the current real estate market.

Dear Edina Realty Legal,

I just made a full-price offer on a house, but the seller accepted a different offer. Doesn’t a seller have to accept my offer if I pay full price?

Despite your offer being at full price, the seller is not required to accept it. When a seller lists a property on the MLS, they are simply advertising that it is for sale; they are not naming a set price. This means that when a buyer submits a purchase agreement, even one for full price, the home seller has nearly complete discretion in deciding whether to accept it.

It may be that the seller received an offer for over the list price and that was the reason your offer was not accepted. And as you likely realized when writing your offer in the first place, there are a lot of variables outside of cost that a seller may consider, including:

  • The request for an inspection
  • The buyer’s use of financing
  • A proposed closing date
  • An offer contingent on the sale of the buyer’s house

Sellers need to evaluate all the terms when deciding which offer is best for their unique situation. A seller might choose one offer over another because the closing date is sooner; because the buyer is paying 100% cash; because the buyer did not need to sell their home before purchasing the seller’s home; or for various other reasons.

While submitting a full-price offer certainly seems like a good way to get a seller’s attention, it is only one aspect the seller must consider when reviewing offers. In the future, work with your real estate agent to come up with your strongest, most competitive offer — and to position yourself as the buyer to beat.

Should I forgo having a home inspection as part of my offer?

The real estate contracts used in Minnesota and Wisconsin have provisions that allow a buyer to make their purchase contingent on a home inspection. Generally, if the buyer and seller agree to this contingency, the buyer will hire a professional home inspector to conduct a thorough inspection of the property and prepare a report of their findings. The buyer and seller can then negotiate possible repairs, and the buyer may have the opportunity to cancel the contract if they are concerned about the condition of the home.

The home inspection contingency has obvious benefits for the buyer, and Edina Realty recommends a home inspection on every purchase. But in a seller-favorable market, we often see different strategies intended to make an offer stand out from the rest of the crowd.

One strategy is to not have the contract contingent on a home inspection. That’s certainly a strategy you can employ, but it comes with risks. Keep in mind that homes can have problems not apparent to the untrained eye. A good professional home inspector has the experience and training to see some of the issues the average person cannot. Your REALTOR® is not a professional home inspector and should not be relied upon in lieu of a home inspector. And even though a seller must disclose problems on the property, there may be potential issues that even the seller is not aware of. If you don’t elect to have a home inspection and later discover a problem with the property, that problem is likely your responsibility as the new homeowner.

I’ve heard that I should include a letter about myself in my offer. But I’ve also heard that I shouldn’t do that. Which is correct?

It’s not uncommon for a buyer to include a letter to the seller with their offer. And in recent years, that practice has become somewhat more prevalent. Some agents are of the opinion that a good “love letter” can help sway the seller to choose your offer.

Some feel it’s not appropriate to provide a letter with your offer, with their concerns rooted in the Fair Housing Act or state laws prohibiting discrimination. The Fair Housing Act prohibits a seller from making a decision on who they sell their home to based on protected classifications, like race, ethnicity, religion, familial status, gender and disability. Some state laws have similar protections that extend to classes beyond that of the Fair Housing Act — for example, Minnesota law protects against discrimination based on sexual orientation.

If a buyer letter contains information about the buyers’ race, religion, or something else that might implicate a protected class, that can put the seller in a tricky position. In fact, many sellers specifically request that no letters be submitted with the offers. If you are going to submit a letter with your offer, we recommend that you focus on the home and what you love about it (which sellers love to hear) and stay away from comments that reflect these protected classes.

I made an offer on a house that was accepted. However, I just received the appraisal, and it is less than the contract price. What can I do now? Can I still buy the house?

As we continue to see increasing home prices in our current market, appraisal issues are a common concern. It can be disappointing when an appraisal comes in lower than the price you had agreed upon with a seller. But a low appraisal is not always a problem. Just because an appraisal comes back less than the contract price does not mean the deal is off, or that the parties are required to renegotiate the price.

While it depends on your specific financial situation, a low appraisal may not impact your ability to move forward with the purchase. In some cases, you may need to bring extra funds to closing, or your mortgage interest rate could be less advantageous — but moving forward with the purchase could still be possible.

Unfortunately, in other situations, a low appraisal can result in an inability to obtain financing for your home purchase. Before submitting your offer, you can work with your real estate agent to determine how you’ll proceed if the property doesn’t appraise. You might decide on different terms to put into the contract, ensuring you can move forward (or walk away) should a low appraisal occur. It is also a good idea to talk with your lender, so you can understand what impact a low appraisal could have on your potential purchase, given your specific financial situation.

The Edina Realty Legal Department serves as in-house counsel for Edina Realty and does not represent private clients. This Insight is not intended to provide legal advice.

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Status Definitions

For sale: Properties which are available for showings and purchase

Active contingent: Properties which are available for showing but are under contract with another buyer

Pending: Properties which are under contract with a buyer and are no longer available for showings

Sold: Properties on which the sale has closed.

Coming soon: Properties which will be on the market soon and are not available for showings.

Contingent and Pending statuses may not be available for all listings