There is nothing new to any of this - waiving inspections and escalation clauses have been very common in Northern Virginia (and other markets) since at least the early 2000's. I've bought three homes that way, the first in 2002. Yes, I do think they increase prices at the margin, and agents contribute to this by convincing their clients it's the only way to get a home; they benefit more if their clients buy something quickly, rather than spend months searching, so they are likely to encourage them to be as aggressive as possible, dropping all contingencies and offering the highest amount they can, through an escalation clause or otherwise. But, I tend to agree that it's on the margins - the real issue is supply and low interest rates (even now, mortgage rates are low, by long-term historical averages). Some states require home inspections, and they don't seem to have fully escaped the price increases in housing.
I bought in the Boston metro in 2019, so a hot market but before the weirdness of Covid. Our experience was fairly smooth but also pretty typical: we submitted about 8 offers before we finally got a hit. Our early ones were probably a little low, we expected a bit more negotiation but it became clear quickly that almost everybody was expecting highest/best (and places were going under contract within a few days). By the end, we actually had cases where we *were* the highest offer and we were not chosen because someone else had waived contingencies. I think in one case the sellers went to a lower offer and got them to raise to ours, but in Offer 7 they literally accepted one that was $5k less than ours but had no contingencies.
For our final offer (which did end up being accepted) we did talk with our realtor quite a bit, who to his credit *did not* advise dropping contingencies. What we did instead was modify them: we increased the earnest money and had a personal letter from our loan officer on top of the normal preapproval documentation, so while we had a financing contingency we tried to demonstrate the strength of our financial position. Similarly, we kept an inspection contingency (though had to get it on short notice since they wanted to have all offers in by like the Monday after the Saturday open house), but we submitted a "no punch list" offer. We still got to make sure it "passed" inspection, but we wouldn't turn in a list of expected improvements.
The play worked because the seller was primarily interested in a smooth sale, so they accepted our slightly higher offer over a competing cash offer and things went through fine. I will note that we did end up with a few things that *technically* we probably should have raised a fuss about: a few fixtures were taken that, legally, should have been left (screwed into the wall, which I believe is assumed to be included unless explicitly excluded in the purchase and sale) and the painting was sub-par, but since we needed to close on time we didn't want to risk derailing the closing by complaining about them (we did not close in person with the seller or their lawyer, they shipped the paperwork in).
In my experience, these things probably add less to the *cost* of homes directly so much as shift the kinds of people who can buy. Individuals/families trying to "do it right" have a harder time getting offers accepted when sellers prioritize selling to the "easy" option of flippers who can buy in cash and don't care about the quality nearly as much because they're already planning to do touch-up work and have the crew on hand. I think increasing supply would help for the people who can afford new construction: those aren't likely to be getting offers from flippers, and maybe if there's more production that encourages more developers to go into net-new builds rather than flips.
Pretty typical stuff for a hot market. When markets turn soft, you see very different behavior. There are also some differences State to state, depending on laws, common practice, title companies vs attorneys etc. But this isn’t all that uncommon.
Re 2020 - we still had historically low interest rates, created a huge infusion of cash, and people were spending a lot of time at home evaluating their living situation. Plus, it timed with about the right age for a large generational cohort to start buying houses.
“ if, for example, mortgage lenders demanded a home inspection in order to issue a loan, which I’m surprised they don’t—then, well, EVERYONE gets a home inspection.”
This is how it used to be. But with the increase of speculators able to sidestep the loan process and pay in “cash”, now regular homebuyers have to figure out ways to compete.
I live in an area that has had more demand than supply for a long time. Even prior to the early 00s mortgage bubble, there were times when houses barely stayed on the market for a week before going under contract. It’s just that internet-accessible databases have sped up the whole process further.
In 2020, I met locals who had to put in an offer before even SEEING the house, and still got rejected in favor of a higher offer or one with fewer contingencies.
There are certainly many causes tied together here. But the biggest one is that there are fewer houses for sale than there are willing buyers.
My recent experiences in selling a home in Berkeley and buying one in NYC gave me some insight into how different regulatory approaches affect the process, including things like inspections, waivers and prices.
California residential RE transactions require the seller to disclose not only a wide range of specifically mandated types of information but essentially any other fact or circumstance that a reasonable buyer might want to know. I have only encountered similar affirmative disclosure requirements in certain securities transactions such as IPO’s. So, in preparing the lengthy disclosure document (prepared with the assistance of an inspector I had to retain), for example, I had to trace back every material change/improvement/renovation done during my time of ownership, research proposed nearby activities and proposals (i.e. UC Berkeley building a new dorm), the history of pest removal and local flood zones.
Given these mandated disclosures, and the seller’s inspection report, buyers will often waive doing their own inspection. Selling in the spring of 2022, competition for homes of my type was fierce, reflecting the historical difficulty of new housing development in Berkeley (and California in general) as well as the demand for larger homes near but not in SF. As far as I can tell, I was very lucky to have sold then.
NY, by contrast, is very much a caveat emptor market. There are few required disclosures (lead paint, flood zones, etc.) and a tight market in the summer of 2022, when I purchased my apartment in Brooklyn. Given the age of the building, I considered an inspection to be essential and there was no pushback from the sellers. I did waive a financing contingency because that is a common expectation of NYC sellers, especially (if paradoxically) among those selling more expensive flats. While I was prepared to close with cash, the lack of a financing contingency did not prevent me from using financing at the closing. The interest rate and lending environment, however, had radically changed since I financed the purchase in Berkeley just two years previously. First, the interest rate was, of course, much higher and, second, the size of the mortgage that lenders would extend was only about half of what it had been two years before. I also discovered how hard it is for retirees to get a mortgage regardless of their net worth.
Finally, the sale in California followed a standard format: a narrow window for showing the house and for bids to be made (which resulted in a short price war). The house went on the market and the sale closed in 30 days. In NY, there isn’t such a typical timeline and closing took almost 4 months, which the brokers said was common.
RE "Agents" have always used multiple tactics, sometimes colluding with each other, to get higher prices. Next time I sell & buy, I am not sure I will use one. It has become more and more blatant over the years, and I am not sure the recent news about changes to commissions will improve the environment...
There is nothing new to any of this - waiving inspections and escalation clauses have been very common in Northern Virginia (and other markets) since at least the early 2000's. I've bought three homes that way, the first in 2002. Yes, I do think they increase prices at the margin, and agents contribute to this by convincing their clients it's the only way to get a home; they benefit more if their clients buy something quickly, rather than spend months searching, so they are likely to encourage them to be as aggressive as possible, dropping all contingencies and offering the highest amount they can, through an escalation clause or otherwise. But, I tend to agree that it's on the margins - the real issue is supply and low interest rates (even now, mortgage rates are low, by long-term historical averages). Some states require home inspections, and they don't seem to have fully escaped the price increases in housing.
I bought in the Boston metro in 2019, so a hot market but before the weirdness of Covid. Our experience was fairly smooth but also pretty typical: we submitted about 8 offers before we finally got a hit. Our early ones were probably a little low, we expected a bit more negotiation but it became clear quickly that almost everybody was expecting highest/best (and places were going under contract within a few days). By the end, we actually had cases where we *were* the highest offer and we were not chosen because someone else had waived contingencies. I think in one case the sellers went to a lower offer and got them to raise to ours, but in Offer 7 they literally accepted one that was $5k less than ours but had no contingencies.
For our final offer (which did end up being accepted) we did talk with our realtor quite a bit, who to his credit *did not* advise dropping contingencies. What we did instead was modify them: we increased the earnest money and had a personal letter from our loan officer on top of the normal preapproval documentation, so while we had a financing contingency we tried to demonstrate the strength of our financial position. Similarly, we kept an inspection contingency (though had to get it on short notice since they wanted to have all offers in by like the Monday after the Saturday open house), but we submitted a "no punch list" offer. We still got to make sure it "passed" inspection, but we wouldn't turn in a list of expected improvements.
The play worked because the seller was primarily interested in a smooth sale, so they accepted our slightly higher offer over a competing cash offer and things went through fine. I will note that we did end up with a few things that *technically* we probably should have raised a fuss about: a few fixtures were taken that, legally, should have been left (screwed into the wall, which I believe is assumed to be included unless explicitly excluded in the purchase and sale) and the painting was sub-par, but since we needed to close on time we didn't want to risk derailing the closing by complaining about them (we did not close in person with the seller or their lawyer, they shipped the paperwork in).
In my experience, these things probably add less to the *cost* of homes directly so much as shift the kinds of people who can buy. Individuals/families trying to "do it right" have a harder time getting offers accepted when sellers prioritize selling to the "easy" option of flippers who can buy in cash and don't care about the quality nearly as much because they're already planning to do touch-up work and have the crew on hand. I think increasing supply would help for the people who can afford new construction: those aren't likely to be getting offers from flippers, and maybe if there's more production that encourages more developers to go into net-new builds rather than flips.
Pretty typical stuff for a hot market. When markets turn soft, you see very different behavior. There are also some differences State to state, depending on laws, common practice, title companies vs attorneys etc. But this isn’t all that uncommon.
Re 2020 - we still had historically low interest rates, created a huge infusion of cash, and people were spending a lot of time at home evaluating their living situation. Plus, it timed with about the right age for a large generational cohort to start buying houses.
“ if, for example, mortgage lenders demanded a home inspection in order to issue a loan, which I’m surprised they don’t—then, well, EVERYONE gets a home inspection.”
This is how it used to be. But with the increase of speculators able to sidestep the loan process and pay in “cash”, now regular homebuyers have to figure out ways to compete.
I live in an area that has had more demand than supply for a long time. Even prior to the early 00s mortgage bubble, there were times when houses barely stayed on the market for a week before going under contract. It’s just that internet-accessible databases have sped up the whole process further.
In 2020, I met locals who had to put in an offer before even SEEING the house, and still got rejected in favor of a higher offer or one with fewer contingencies.
There are certainly many causes tied together here. But the biggest one is that there are fewer houses for sale than there are willing buyers.
My recent experiences in selling a home in Berkeley and buying one in NYC gave me some insight into how different regulatory approaches affect the process, including things like inspections, waivers and prices.
California residential RE transactions require the seller to disclose not only a wide range of specifically mandated types of information but essentially any other fact or circumstance that a reasonable buyer might want to know. I have only encountered similar affirmative disclosure requirements in certain securities transactions such as IPO’s. So, in preparing the lengthy disclosure document (prepared with the assistance of an inspector I had to retain), for example, I had to trace back every material change/improvement/renovation done during my time of ownership, research proposed nearby activities and proposals (i.e. UC Berkeley building a new dorm), the history of pest removal and local flood zones.
Given these mandated disclosures, and the seller’s inspection report, buyers will often waive doing their own inspection. Selling in the spring of 2022, competition for homes of my type was fierce, reflecting the historical difficulty of new housing development in Berkeley (and California in general) as well as the demand for larger homes near but not in SF. As far as I can tell, I was very lucky to have sold then.
NY, by contrast, is very much a caveat emptor market. There are few required disclosures (lead paint, flood zones, etc.) and a tight market in the summer of 2022, when I purchased my apartment in Brooklyn. Given the age of the building, I considered an inspection to be essential and there was no pushback from the sellers. I did waive a financing contingency because that is a common expectation of NYC sellers, especially (if paradoxically) among those selling more expensive flats. While I was prepared to close with cash, the lack of a financing contingency did not prevent me from using financing at the closing. The interest rate and lending environment, however, had radically changed since I financed the purchase in Berkeley just two years previously. First, the interest rate was, of course, much higher and, second, the size of the mortgage that lenders would extend was only about half of what it had been two years before. I also discovered how hard it is for retirees to get a mortgage regardless of their net worth.
Finally, the sale in California followed a standard format: a narrow window for showing the house and for bids to be made (which resulted in a short price war). The house went on the market and the sale closed in 30 days. In NY, there isn’t such a typical timeline and closing took almost 4 months, which the brokers said was common.
RE "Agents" have always used multiple tactics, sometimes colluding with each other, to get higher prices. Next time I sell & buy, I am not sure I will use one. It has become more and more blatant over the years, and I am not sure the recent news about changes to commissions will improve the environment...