The old adage, “In real estate, everything’s negotiable,” suggests that real estate transactions are held on an equal playing field. Apparently, the writer of these sagely words never stepped foot inside the red-hot Boulder real estate market.
Here in Boulder, new-to-the-market homes seem less like fresh real estate listings and more like chaotic Black Friday doorbusters. Eager buyers are bum-rushing the market, throwing caution to the wind, and placing plenty of extra cash on the table. This trend doesn’t appear to be ending anytime soon, and it’s one that’s creating a seriously risky rise in “naked” buyers.
Colorado is unique in that the state’s Real Estate Division has created state-approved forms for buying and selling real estate, along with a plethora of various real estate contracts, addenda, disclosures, and other forms. Drafted by Division board members, the Contract to Buy and Sell Real Estate covers a myriad of potential issues, offering buyers protection in three major areas: condition, value, and affordability. Protection: it’s a good thing, right? Well, not if it adds another layer of red-taped contingencies to your offer in a highly competitive market like Boulder.
In Boulder real estate, buyers are consistently removing these protective contingencies from their offers to increase their chances of securing the home. Let’s talk about what they’re giving up:
Condition
When buying a new home, you generally want to make sure that the home is up to snuff. With the contract’s Inspection Deadline, the buyer is given a chance to inspect the home and ensure that it meets health and safety standards. While the seller is not obligated to correct any issue found, the buyer has the right to know of any defects prior to purchasing the home. By removing this contingency, the buyer indicates that they’re willing to gamble: they’ll take the home in its as-is condition, warts and all, no questions asked.
Value
The contract’s Appraisal Deadline gives the buyer an opportunity to have the home assessed by a licensed appraiser to determine its value. While the market value often differs from the appraised value, an uninterested third party’s opinion is valuable, and will be required by any potential lender. Under this contingency, if the home doesn’t appraise, the buyer may choose to increase their down payment or request that the seller adjust the price accordingly. By removing this protective contingency, a buyer may have to pony up more money or risk being in breach of the contract.
Affordability
Known as the contract’s Loan Objection Deadline, this contingency offers the buyer protection should they not be able to secure a loan. While loan pre-qualification typically indicates a buyer’s ability to afford a home, life changes can disrupt finances and sometimes affect one’s ability to obtain a loan. Additionally, lenders are tightening their belts: with recent stricter lending regulations in place, the loan process is an arduous one. By removing the Loan Objection Deadline, buyers are putting themselves at serious financial risk if their loan falls through.
So, what to make of these high-stakes risks? It’s difficult to say. As real estate brokers, our interests are always laser-focused on protecting our clients. But in a red-hot real estate market where any decent property is getting a half dozen offers—most without these contingencies in place—it’s important to keep up. While we find it hard to suggest removing the protective contingencies, it appears to be Boulder’s new reality, and a requirement to compete with other buyers. Like they say, “When in Rome…”