Most experts will tell you that the real estate market will eventually crash in 2020 because of the many factors including the current pandemic and the rising unemployment rate. If you ask anybody who is actively looking to buy a house in the Phoenix metro area they’ll tell you differently. We are going through one of the hottest markets I have ever seen in the Phoenix area since I moved here in 2009. With the combination of the low interest rates and shortage of properties on the market, the valley is starting to see home prices shoot through the roof. Homes for sale under the $400,000 price point are selling for 10 to 30 thousand dollars over the list price. Buyers are desperate to get their offer under contract and they are waiving appraisal contingencies, forgoing their inspection period, and using escalation clauses all to get their offers above the rest of the competition. If you’re a buyer in this market and frustrated because you’re always getting beat out you’re not alone. Buyers know that in order for their offer to stand a chance they’ll need to offer above the home’s list price but that’s not enough. In this market it’s not how much above the list price you’re offering but how much you’re willing to overpay for home. This means along with your above asking price offer you’ll need to waive your appraisal contingency. In an AZ real estate purchase agreement buyers have a few contingencies. One of them being an appraisal contingency which states if the property does not appraise for at least the purchase price then the buyer can walk away from the contract and take back their earnest money. In most cases if a property does not appraise for the contract price, the seller agrees to reduce the purchase price to the appraised value. With all the competition in the market now sellers are looking for buyers to waive the appraisal contingency which does not mean an appraisal will not be performed but once the appraisal is performed and if the appraised value comes in lower than the purchase price, the buyer will lose their earnest money if they choose to walk away from the deal. More than likely the buyer will then overpay for the home rather than lose their earnest money and have to start the house hunting process over again. Buyers waiving the appraisal contingency is common practice in high demand markets like Seattle, San Francisco, and San Diego but here in AZ it’s only used once inventory is at a 2 month or less supply. Buyers be careful if you choose to waive your appraisal contingency. Know your numbers and keep in mind how much you’re willing to overpay in this market.
