Unusual markets can spur some unusual behavior, as today’s low level of homes for sale in the Chicagoland area proves. Over the summer, we began to observe some homebuyers in Chicago, as well as Northwest Indiana, Southeast Wisconsin and Southwest Michigan, employing fairly aggressive tactics to take homes off the market, even going so far as to make full-price or above-full-price offers sight unseen. We also began noticing that a lot of these homes were coming back on the market a couple of weeks later when the deals fell apart.
It turns out, buyers were using the equivalent of Chicago’s “this chair saves my parking space” tactic, tying up the listing with a contract and then using a minor inspection issue or other technicality to get out of the deal if the home didn’t check all the boxes. In our opinion, this is negotiating in bad faith, but how do you sniff it out and prevent it if you’re a home seller?
Get a Pre-Inspection
Most buyers will hire an inspector as soon as they put a home under contract. But with a pre-inspection, the seller hires their own inspector before even listing the property to identify repairs that should be made now or in the near future. The seller can decide to address or disclose those issues, and if they do, it takes potential objections off the table. The buyer can still hire an inspector, but as long as the pre-inspection was performed by a competent professional, the odds are low that any surprises will come up. And this means there is less of a chance that a buyer will use the inspection as a pretense for backing out of a contract.
Require Hard Earnest Money
A less common tactic for preventing scuttled deals is requiring earnest money to “go hard” at the time of contract signing. This means the buyer must commit their deposit whether they go through with the home purchase or not. This approach is usually only effective when the seller has a lot of leverage, for example if they’re selling a home in mint condition, priced in line with recent comps and in a high-demand area. But if you can get away with it, requiring hard earnest money is one sure-fire way to find out which buyers are fully committed to going through with a sale.
Buyers: Negotiate in Good Faith
For buyers, conducting thorough due diligence is always strongly encouraged, and a home inspection that reveals serious defects can certainly be a legitimate reason for renegotiating or canceling a contract. But it’s important to know that writing an offer for a home you don’t fully intend to buy is rarely an effective shopping strategy. In the end, successfully navigating today’s market conditions of limited supply and high demand comes down to communicating with your agent and taking the steps to position yourself as the strongest buyer possible.