Yes, Virginia, there are multiple contracts!

Any buyer trying to buy a home in Northern VA these days is running into an odd situation–multiple contracts and bidding wars. Remember those?

The question is why. You’ve probably heard of the robo-signing issues that started to come to light last October. The foreclosure practices of lenders came under scrutiny when it was revealed that managers were signing off on thousands of foreclosures a month without even cracking the files to verify the information that was inside. Judges became reluctant to approve foreclosures just on the word of the lenders and servicers.

As a result, lenders froze foreclosures in the 23 states that have judicial foreclosures in order to review their processes causing at least a 50% drop in homes that moved from foreclosure to REO status (where the bank actually takes possession) in October and November. Virginia is not considered one of the 23 judicial states (although it does do some judicial foreclosures), but the statistics are now showing that the robo-signing effect carried over into non-judicial states where there was a 47% drop in homes that moved to REO status.

Last year inventory declined dramatically because of the large number of buyers trying to take advantage of the First Time Home Buyers Tax Credit. This year, inventory is declining because foreclosures, which make up about 30% of the home sales in the DC Metro area, have been cut in half due to the robo-signing mess. This chart shows the difference in inventory when tax credits and robo-signing are not factors:

If you are selling your home or thinking about it, you have hit a good window. There are buyers out there trying to buy before interest rates go up, and foreclosure inventory is unusually low so you do not have as much distressed property competition.

If you are a buyer, what is your best plan of attack to get the home of your dreams? Know the market and know your competition.

I was recently working with a couple that had lost out in a couple of multiple contract situations. They were trying to structure a contract that would allow them a higher than average seller contribution towards their closing costs so that they would have cash to paint and buy furniture, etc. In order to do this, they would increase their offer price to compensate for the seller contribution. Listing Agents were reluctant to accept my buyers’ offer because the listing agents were concerned their property would not appraise for the higher offer price compared to other offers that were not asking for as much in seller contributions.

I knew the Listing Agents did not want to put their listing under contract, contingent on an appraisal, only to have to have to put the house back on the market when the appraisal came in too low–losing valuable marketing time for their sellers. My job? To find a solution that alleviated the concerns of the seller, yet met the needs of my buyer.

My buyers found a wonderful townhouse in Arlington that they just fell in love with. We submitted a contract immediately–knowing that others would be coming in. This time I included an addendum that addressed the appraisal issue. Based on my knowledge of the market, I was confident that the appraisal would come in at or above my buyer’s offer price. The addendum gave the seller peace of mind that the appraisal would not kill the deal, yet it allowed my buyer the opportunity to maximize the seller contribution. Win-Win for everyone. The appraisal came in at my buyer’s offer price, and settlement occurred without a hiccup.

The first thing my buyers did after settlement was to send me a photo of them sitting on the floor of their new living room eating Chinese take-out. I loved it!