Shifts In Buyer And Seller Behavior

I think it's safe to say that 2020 taught us to expect the unexpected and adjust focus quickly. At the end of 2019, the 2020 market appeared poised to continue on a steady trajectory of increasing prices, decreasing inventory, and stiff buyer competition in a market that favors sellers. Those predictions weren't necessarily wrong, but they were a bit off. Inventory shortage remains a significant issue, but interesting changes in buyer and seller behavior have created some new trends. 

Decrease in contract contingencies: This one isn't surprising. Buyer contingencies have steadily decreased as buyers attempt to sweeten their offers in a highly competitive market. Low inventory will continue to drive this trend so long as demand outpaces supply and buyers compete agains scores of others. 

Increase in contract terminations: This trend caught people off guard initially. After reducing contingencies, increasing offer prices, and crafting inventive offers to secure a contract, buyers are terminating those contracts at an increased rate. On review, it's not difficult to spot the circumstances causing buyer's remorse and the uptick in contract terminations.

The excessive stress of shopping in an ultra-competitive, seller's market during a pandemic and the inability to secure a contract. The offer terms required to win a bidding war: reduced buyer contingencies, offer prices well over listing, high earnest money deposits, rapid turnaround times, etc. The anxiety of overextending the budget, especially hard-hitting once a home inspection has been done and buyers get a sense of the work needed and expense involved. Frustration with sellers that buyers believe aren't willing to negotiate, seem greedy, or appear to be holding their buyer's feet to the fire.

The trend of buyers submitting multiple offers simultaneously to combat the wasted time and missed opportunities during a seller's review period. Sellers can find good news in the fact that these shifts don't appear to harm them overall. Sellers often reach mutual acceptance with a second buyer quickly. Of my post COVID listings, 45% had initial contracts that were terminated by the buyer. The reasons provided included buyer anxiety over the purchase price combined with the home inspection, buyer financing due to a miscommunication between the lender and selling agent, and buyer submitting multiple offers resulting in two contracts and choosing the other property (quick note selling brokers: if you find a client in this situation, please terminate the chosen transaction immediately and not several days later). All listings went back under contract quickly. In one case, the listing's second contract included the original buyers that had previously terminated. After terminating, all parties were able to regroup and decompress. The original buyers came back with a revised second offer that the sellers were able to accepted, though it took some thought and calm discussion. 

Sellers and listing agents need to be aware of the trend towards increased terminations and keep calm if they find themselves in this situation. The best path forward is a quick resolution of the terminated contract, open communication with selling agents, and transparency moving forward. Every selling agent will ask what happened to the initial contract, and open and honest communication will help to sell the house a second time. In addition, sellers should understand the stress placed on buyers by market conditions and tempter their actions and responses. 

Buyers can spot a silver lining in the possibility that a home they missed out on may come back on the market. Backup offers are often encouraged, but seldom seen. Buyers and selling agents that are concerned about wasting time should prepare a withdrawal of their backup offer that can be submitted quickly and continue shopping for additional properties.  

Buyers and selling agents should freely communicate, and buyers should be judicious in overextending themselves. Not every property is worth their absolute best, boundary pushing offer. Buyers should only step out of their comfort zone when losing a particular property would be heartbreaking. If their best doesn't secure the contract, buyers should consider a backup offer and communicate their continued interest to their agent and the listing agent. Another buyer's termination may just be the break they've been waiting for. 

In short, anxiety is high. Listing and selling agents need to do their upmost to educate and prepare clients, and buyers and sellers need to remember to breathe and attempt to keep emotions in check.