Residential Real Estate 2022: A Buyers’ Survival Guide

April 15, 2022

by William D. Fergus, Jr., Esq., Northwest Title Family of Companies, Inc.

As everyone who has looked at purchasing residential real estate this year is aware, the current market in Central Ohio is extraordinarily favorable for sellers. Demand is high, with interest rates still low by historical standards, and new home construction has been slowed by supply chain problems related to the COVID-19 pandemic.

As a result, the inventory of new and existing homes for sale is historically low. Currently, there are fewer than 1,700 homes listed for sale in metropolitan Columbus, versus 5,009 in 2019, another year of high housing demand.

The above-described market conditions are likely to continue into 2023 absent a substantial deterioration of the U.S. economy and/or a large increase in prevailing mortgage interest rates. As a result, increasingly desperate buyers are submitting completely non-contingent purchase offers on properties for far above list price in hopes of outbidding rival potential buyers. As might be expected, some of the foregone contingencies carry more risk to buyers than others.

In a normal, balanced real estate market, sellers will accept contracts with contingencies for obtaining financing based on the full amount of the purchase price, as well as satisfactory inspection of the premises with the opportunity to request remedies for defective conditions. However, in the current sellers’ market, buyers are eliminating some or all of these contingencies, sometimes without understanding the consequences.

Buyers should exercise caution before eliminating contingencies that are built into a real estate purchase contract that are specifically designed to protect their interests. Financing contingencies should be completely waived only if the buyer is prepared to pay cash at closing (as many are in the current market). A clause making the contract contingent on the property appraising for the purchase price for loan purposes should similarly be waived in whole or part only if the buyer is ready to provide cash to cover the “gap” between the appraised value that the lender will use for loan purposes and the purchase price. Finally, it is reasonable to provide in a purchase contract that the purchase is contingent upon a satisfactory inspection of the premises, but the buyer will not request that the seller remedy defective conditions. However, buyers should never waive the right to inspect the premises. Such voluntary failure to inspect can curtail a buyer’s right to pursue legal remedies in the event of defective conditions being discovered after closing.

Market conditions never last forever. The buyers’ market of 2010 is now the sellers’ market of 2022. The market will swing back in favor of buyers. Until then, caveat emptor!