For many of us, the last couple of years have seen significant changes that have caused a shift in how we have decided to shop for homes. Many employers are moving towards remote work for increased productivity and overhead cost savings, leading many employees to trade in their commute friendly home for something larger, albeit more distant. As businesses closed their doors, former employees found themselves moving to new locations for work. Those who were also hit economically ended up moving to cheaper locations and downsized homes. On top of this, there was a shortage of homes available in many areas. A confusing time to say the least.

If you are in the market for a home, you know that buyers face a series of unprecedented hurdles in purchasing a home, making it a situation ripe for financial mistakes, irrational decisions, and impulsivity. This can also be true for sellers, and while now may be a great time to sell relative to the amount one can make off their home, selling a home comes with several risks of its own. Most notably, a seller will likely need to relocate to another home and become a buyer in a sellers’ market. Sellers may also find the amount they received from their sold home will not go as far as they had imagined.

Buyers have usually had the upper hand in the home market because contracts are generally written with several contingencies that protect the buyer and allow them to keep their earnest monies in the event the house turns out to be a less than ideal purchase. However, current bidding wars mean a home buyer faces the need to waive several of these contingencies, such as an inspection and an appraisal. It is likely a buyer will also pay above market and many times above the asking price.

Obviously, waving an inspection exposes the buyer to potential issues with the home that can be significant and costly down the road. An appraisal waiver is less risky, but without an appraisal and guarantee that the home is worth at least what you’re paying, financing can become difficult. Last, because it is believed the current home values are artificially inflated, once the market corrects and property returns to a more genuine value, you may find you owe significantly more than the property is worth, and in the event you need to sell, your loss may be substantial.

What if you’ve found a place that you thought was your forever home, but now that the smoke has settled you are having second thoughts? Moreover, because of the competitive market you waived many of the contingencies you may have been able to fall back on as a means of getting out of the sale. You may still be able to walk away from the purchase, but will likely lose any earnest money you have provided as a deposit, as well as any other fees you’ve paid. Of course, there is also the threat of legal action, though in hot markets this can be rare as the seller usually has other buyers lined up, and some may have higher offers.

What if you’re a seller who has started to close on a deal but received a higher offer in the meantime or changed your mind because you can’t find another place to live, are you stuck? Not necessarily. As the seller in this hot market, you can get away with adding more contingencies in the sale without potentially scaring buyers away. As far as the higher offer is concerned, if you haven’t signed the home purchase agreement the higher offer can still be accepted. However, if you have already signed the agreement and the buyer meets all the contingencies, or they were waived, you may be stuck with the lower offer. If your fear is not being able to find a home, you will want to add a contingency in your agreement that you must find another place to buy before the sale of your current home can go through.

Home Purchase agreements are contracts governed by the various contract laws of each state, and can be extremely complicated. If you find yourself in a situation where you don’t want to follow through on either your purchase or your sale, speaking with one of our firm’s attorneys can prevent you from making a disastrous decision and living with regret for many years to come. Please give us a call to be advised of your best options so you can rest easy at night when dealing with the largest purchase you will make in your lifetime.

If you have questions about this article, please contact Mike Jacquez (mjacquez@setlifflaw.com) at (804) 377-1262 or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.