Wednesday, July 9, 2014

Menlo Park Ca: the Perils of Non contingent Offers For Sellers

Menlo Park multiple offers
In this crazy market of homes getting five, ten, fifteen, even twenty offers, everyone knows that buyers are taking a risk when they make a non contingent offer on a Menlo Park home. This means that the buyer is waiving all rights to inspect the house as well as any rights to back out of the offer on the Menlo Park home for sale if the bank turns down the request for a loan. A non contingent offer on a Menlo Park home also means that no matter what the home appraises for, the buyer agrees to make up the difference in cash.
Here is how it works.  The home is listed for $995,000. The winning offer is $1,300,000. The buyer is going to put 20% down or $$260,000 and get a loan for $1,040,000.  The buyer shows proof of funds of $350,000.
Now let's say the Menlo Park real estate agent representing the seller believes that the comps for the house proved the home was worth between $1,100,000 and $1,150,000 and is suggesting listing under a million to generate a lot of offers.
If the seller picked a great Menlo Park real estate agent then he or she should be very confident that an appraiser will also feel the home is worth $1,100,000 to $1,150,000. If the home appraises for $1,150,000 then the bank will loan 80% of that number or $920,000 and the buyer will need $380,000 for the down payment as well as money for closing costs and reserve requirements from the bank.
You can see from this example that the buyer of this Menlo Park home for sale is going to be in trouble. With only $350,000 in available cash the deal is not going to work.  This buyer has aspirations that do match with his/her wallet.
The consequence to the buyer is that the non contingent offer does not give him/her an out and the 3% deposit made with the offer is at risk of being forfeited. This is common knowledge, but what about the risk to the seller.
People rarely talk about the seller's risk in a transaction. Even in this hot Menlo Park seller's market the seller can be left in a bad situation if the first buyer can not perform. You may have a back up offer but that person may have already found another home or had a change of heart. The word will get around that the home only appraised for $1,150,000 and so getting $1,300,000 for your Mountain View home may be tough. Getting $1,250,000 at this point could be tough.  Also, you could potentially lose weeks of time which can disrupt the plans of a Menlo Park home seller, or put the house back on the market at a less favorable time.
The lesson to be learned here is that in looking at offers the highest may not be the best. Your Menlo Park Real Estate agent should help you analyze which potential buyer has the best chance of closing the deal the first time around.
If you have any questions about selling a home in Menlo Park please feel free to contact me.
Marcy Moyer
Cal BRE 01191194
650-619-9285

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