In today’s tight housing market, selling is easy. Buying isn’t.
That’s why some sellers in the Twin Cities are turning to a rare tactic: They’re telling buyers they’ll make a deal only if they themselves can find a house to buy.
“Sellers are afraid of selling their house and not having anywhere to go,” said Dave Delay, an Edina Realty agent.
Often, shoppers offer to buy a home with a so-called “contingency,” or condition, that they’ll do the deal only after selling their existing house. Now, a small but growing number of sellers are putting in a contingency that they will sell only if they can find another place to live.
One reason: The number of house listings in the metro area is at an all-time low. During March there were just 11,893 listings on the market, 21 percent fewer than a year ago. At the current sales pace, those listings would last 2.5 months.
This situation is great for sellers. Many are juggling multiple offers and getting what they ask for their house. Prices in some parts of the metro exceed pre-recession highs.
The shortage of listings is the result of several factors. Paralyzed by the fear of not finding a place to go, many would-be sellers simply aren’t willing to list. “The fear of loss is greater than the desire for gain,” said Chris Galler, president of the Minnesota Association of Realtors.
There’s also a shortage of new houses. And the pool of prospective listings has been reduced by national investment firms that bought thousands of homes during the recession and now rent them out.
The most severe shortage is for houses priced at less than $300,000, the ones sought by first-time buyers and retirees who are downsizing. Right now, there’s just a two-month supply of houses in that price range — the lowest of any category — and those houses are selling in days and often for more than the listed price.
That’s put people like Jonathan and Jenna Juris in a precarious position. A few months ago, when the couple decided to move up from their $279,900 house in Rogers, they were reluctant to put their house on the market first. They expected it would get snapped up quickly but, if it didn’t, they worried about making two mortgage payments.
So when they put an offer on a house, they made it contingent on the sale of their house. The seller accepted, but eventually backed out of the deal.
The couple, worried their house would sell before they found another one, kept it on the market but added a contingency that said that they’d only sell their house if they found a house to buy within two weeks.
Within a week, they got a full-price cash offer on their house. And they also found a $415,000 house they liked in Otsego and got it, clearing the way for the closing on both properties.
To help streamline the process, and to pave the way for other agents, Carl Kvale, an Edina Realty agent in Alexandria, wrote his own seller contingency form and had it reviewed by his company’s legal department.
“This is a product of the market we’re in right now, I’m seeing the tightest inventory I’ve seen in 18 years,” said Kvale, who is working with several clients who are still too nervous to list. “In the real estate business, we handle fear with contingencies.”
Unlike the forms that are required for a homebuyer’s contingency, which is a relatively common practice, the Minnesota Association of Realtors doesn’t have a standard form for a seller’s contingency.
“It’s a short-term situation and that’s one of the reasons there’s not a standard form for it,” Galler said. “We’ve had tight markets before and a good agent will know what to do.”
Conventional wisdom suggests that, with limited options, would-be buyers are more likely to make an offer. But the opposite is often true, Kvale said. Shoppers for houses, as with cars and other big-ticket items, feel the need to compare several options.
“Buyers are still being picky and fickle in a market where they can’t be,” he said. “Even if there’s only one car on the lot and even if everything works, you still want to test drive other cars, but you don’t have anything to compare it to.”
There’s no limit to how long a seller can ask a buyer to wait to close a deal, but generally they last 30 to 90 days. The duration of the contingency has a parallel impact on the potential downside for buyers.
That’s because buyers who agree to a home purchase contingency are essentially in limbo until the seller either buys a home or waives the contingency, so many are apt to avoid agreeing to such a situation.
“As a buyer’s agent I’d want to vet the situation to make sure their ‘buy’ side expectations are realistic,” said Ben Johnson, an agent with ReMax Results in Wayzata.
He said that inventory is so tight, he has several buyers who would happily agree to a seller’s contingency if it meant potentially getting the house of their dreams. He’s working with a young couple who want to buy a $250,000 starter house in south Minneapolis but have been outbid on five houses.
Johnson is also working with a client with a traditional two-story house in Eden Prairie who wants to sell, but only if they’re able to replace it with a house on a lake. Johnson has proposed a contingency that says the sale can close in 45 to 180 days subject to the seller finding a home.
Betty Johnson, an agent with RES Realty, is working with a couple with similar concerns. They own a two-bedroom manor house and while it’s priced at about $120,000, it’s on the second level with no elevator and they need a place that’s bigger and more accessible. Given its modest price, they expect it will sell sooner than they’ve found what they want: A single-family house priced at less than $210,000 in a specific school district.
They’ve found several houses that suit their needs, but the houses have either sold before they can make an offer or they’ve gotten outbid, and they’re worried that they could end up having to live in temporary housing.
“They’re finding properties but they can’t act fast enough,” said Betty Johnson. “Everybody buying in that price range is in the same boat.”