The Return of the Contingent Buyer

2018 was one of the most unusual years for Real Estate that I have seen in my almost 30 years of selling homes. The first 5 months were a complete and total Sellers’ market. Buyers would offer over asking price, remove contingencies (especially for the home to appraise) and basically ask nothing of Sellers in the way of repairs. I wrote a blog at that time “When will this Sellers’ market ever change?” describing how a lack of available homes and pure Buyer confidence was fueling something that seemed like it would last forever. Until it didn’t. In June, things started to slow. “Maybe it’s vacations or the interest rate increases” we wondered. Then July and August clearly slowed even more. Homes simply didn’t sell right away. When an offer came in it was one or two, not five. We started to see price reductions again as smart Sellers realized the market for their home simply wasn’t there the way it was in April or May. Now I’ve written about how the Spring season is especially obvious in Santa Clarita because of demographics and so many people wanting to move around the school year. But this was something noticeably different. By September (a pretty strong month in 2017), the amount of homes for sale was up 30% from April. Buyers not only offered under asking price, they would not even respond to counter offers from Sellers. Once in escrow, Buyers would ask for extensive requests and credits…something we never saw in the Spring. In short, the market had in many areas completely flipped in the space of about 4 months. It was clear that what we could get for our Sellers had changed and it required new thinking and a willingness to work with any motivated Buyer, we didn’t have a handful to choose from anymore. The Buyer exuberance that we saw in March/April/May, when over 450 homes each month opened escrow, changed to caution. In the October/November/December months not once did more than 250 homes open escrow. The 6-year run up in prices seemed over.

Which brings us to 2019 and the return of what most people historically would describe as a “normal” market. This market is defined by homes taking longer to sell (normal), Sellers sometimes having to negotiate price and repairs (normal) and Buyers taking their time to evaluate and purchase instead of just jumping on a home for fear of missing out (normal). Buyers are no longer fearful that prices will pass them by because…they aren’t. We still don’t have too many homes for sale, about 700 compared to the 400 we had a year ago, so no big price adjustments across the board are likely coming. Sellers have equity and if they don’t like the market values, they simply won’t sell. That is already happening. Also, clearly homes with desirable locations and upgrades are still commanding top dollar and multiple offers still occur. Just not like they did in Spring of 2018. Many top agents believe Spring of 2018 likely represented the top of the market for the next few years. Time will tell. Regardless, these market shifts are actually healthy to overall market stability in the long term. Prices being essentially flat for a year or two shouldn’t surprise anyone. As I wrote in the Spring “nothing goes up forever,” and it didn’t about 2 months later. All this means moving forward is that Sellers will have to conform to current market conditions and so will the Realtors. Any agent less than 7 years in the business likely hasn’t seen this kind of market and may not know what it requires. In short, it means we really have to work at a much higher and smarter level to get our Sellers into escrow. Again, historically normal. Those of us that have seen this before, in some cases many times, know exactly what is required and that is working with the Contingent Buyer.

The Contingent Buyer is someone that needs to sell in order to buy. This Buyer has historically driven the market in Santa Clarita. When the market was dead slow in the early 90’s a group of top agents decided to start the first Network Group to try to put transactions together. We noticed that it seemed to be the same 20-30 agents that had the majority of the clients that were ready to actually do something and most of these clients needed to sell to buy. We would literally meet and describe our clients that wanted to sell and move up or move down. In this group we could put a condo Seller into a 3-bedroom Seller into a 5-bedroom Seller into an estate home. All we needed was a first-time condo Buyer to get the chain started and inevitably one of us had that. That group exists to this day doing over 25% of the sales in Santa Clarita and my guess is the next two years will require us to dust off some of our real networking skills and get to work. Homes simply won’t sell on their own, they will need to be “marketed” at a much higher level. This Contingent Buyer, that needs to sell to buy, isn’t a Buyer that Sellers have looked favorably on in the past few years. Why choose a Buyer that needs an escrow to close when there are plenty of Buyers that don’t need to sell anything to buy their home? Understandable of course. This is a Buyer that potential Sellers should love, though they certainly didn’t have to work with them 9 months ago. They had plenty of non-Contingent offers. Many Sellers will tell me “I don’t want any Contingent offers” and in a hot market that can be fine. Today, though, that would often be a mistake and it’s important to understand what this Buyer can do for you as a Seller and why they are often even BETTER Buyers in a shifting market than a non-Contingent Buyer!

The reason a Contingent Buyer might be a better Buyer for you if you are selling is that they are usually highly motivated. They have just sold their home. They are in escrow. They HAVE to buy. Often as the market shifted in the fall, we noticed non-Contingent Buyers exhibiting a real lack of motivation. Some simply wanted to see what the Seller might do for them in escrow and walked away when they didn’t like the results. Some offered lower than a motivated Contingent Buyer would. I had Sellers choose Contingent offers over non-Contingent offers simply because they believed the Contingent Buyer would give them a smoother escrow and most importantly, close the deal. That is a big reason why working with a Contingent Buyer in a normal market can be so important. Now, I am not describing a Buyer that hasn’t yet put their home on the market or is on the market but hasn’t opened escrow. Those Seller/Buyers have importance too, but they aren’t ready to go. I’m referring to the Buyer that already is in escrow with their home and wants to buy yours after theirs closes. This is where the knowledge and expertise of your agent becomes critical in vetting out their escrow to make sure it is solid. Once we know that they have solid escrow we can usually expect a concurrent closing that works for all parties. It’s funny how quickly things can sometimes change. A year ago, discussing Contingent Buyers would have been something home Sellers didn’t want or need to consider. Today, it could be the difference between selling and not selling.