According to a recent National Association of REALTORS®’s article, a HomeLight survey, and based on an increase in real estate dispute inquiries and mediations facilitated by this author, an increasing amount of buyers who won ‘bidding wars’ are backing out of their purchases, often (per the Seller) leaving the home in a less desirable position than when it was first listed and ‘red hot’, and opening the door to deposit disputes.
The National Association of REALTORS®’s reports some home buyers are backing out of purchase contracts due to second-guessing the contract price. That is prompting some listings to return to the market after a bidding war.
Fifty-four percent of more than 1,100 real estate professionals recently surveyed by HomeLight, a real estate referral site, said they have seen or heard of buyers backing out of contracts after having regrets.
Our office has seen an increasing amount of deposit dispute mediations and legal inquiries involving cancelations. Likewise, while assisting clients to buy or sell real estate, we have noticed more cancelations than ever. Sometimes to the detriment of the seller, but not always.
Many buyers, frustrated with the current market and losing out on multiple offer situations, may head into a new bidding war with an all-in intent to win, and perhaps overpaying. “They win and for a moment they’re happy about it,” the report says. “But now they have several weeks to mull over their decision before the deal closes. They crunch the numbers again and experience pangs of regret over the ridiculous price they agreed to pay. They begin to obsess over flaws with the home that they initially overlooked.”
So then they approach their real estate agent, or contact a lawyer, to look for a loophole and a way out. Even when contingencies have been waived, there may often be additional ways for buyers to legitimately back out of a deal. (Review our article and/or video on cancelations by clicking here.)
But once they walk away from the deal, in some cases, “the house goes back on the market with a stigma that there’s something wrong with it,” the report notes. Not to mention the obvious impact of losing out on that initial ‘hot home’ status and the first impression of buyers.
The trend is playing out more often as bidding wars for a limited number of houses have grown more commonplace.
Cancelations are not all bad news, many patient buyers (and their persistent agents) stay in touch with listings and can often ‘swoop in’ to an existing escrow upon a cancelation. This makes cancelation data hard to pin down, as many listings do not actually appear back on the MLS (the seller may simply accept a new offer and move on to the next buyer, without ever updating the status online).
However, the price and terms of the new buyer’s offer may not be the same as before. We have seen and helped some of these ‘second buyers’ get better deals; but conversely, we have seen ‘second buyers’ pay more than the original buyer!
It all depends on the local market, but there’s no doubt a cancelation is exceedingly frustrating for sellers.
Review our article and video on cancelations before making any rash decisions about the security deposit, and/or consult with legal counsel prior to any dispute escalation. The California Association of REALTORS® Residential Purchase Agreement (“RPA”) is very clear on cancelations and dispute resolution requirements that must be followed.
– Devin Lucas
Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate.
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Lucas Real Estate
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