There was a time – not so long ago – when contingencies were the most challenging part of getting a home sale completed. That is not the case in today’s market.
Some buyers forego ratings and inspections in order to gain advantage or position in this highly competitive market. In some ways, this isn’t the most prudent decision, but it is a tactic in the market today.
According to a recent survey of more than 3,300 brokers, the most common waivers are assessment contingency (28%) and inspection contingency (25%).
But what about the rest of the picture?
- No waiver of contingent liabilities – 22%.
- Financial risk – 11%.
- Contingency when selling a home – 9%.
- Title contingency – 2%.
- Others – 2%.
Many buyers who forego contingency either pay in cash or use conventional financing. Cash buyers make up more than a third of local home sales.
Buyers using FHA or VA loans cannot forego the rating or inspections, according to Gay Cororaton, a research economist with the National Association of Realtors (NAR). This often puts them at a disadvantage for buyers who do not have to adhere to the FHA or VA funding rules.
Although FHA buyers do not dominate the local market, their numbers have increased. Likewise, the number of transactions from local veterans and those who move here after their service. Veterans make up just over 10% of the local population.
“In a real estate market where sales are fast moving, the time to complete the inspection and assessment is a hurdle for buyers receiving FHA-insured loans who are typically first-time buyers and buyers receiving VA-guaranteed loans “Cororaton wrote on the NAR Economic Outlook blog.
Buyers also compete with those who make more money to close. The proportion of mortgages with at least 20% down payment rose to 52% in May. According to the NAR survey, this is an increase of around 40% in 2011. Almost every third first-time buyer paid a down payment of at least 20%, compared to around 25% in 2011. The local down payment norm during this period was 12%.
NAR’s blog notes that buyers with conventional financing are ousting those with FHA and VA loans. Both offer low down payment financing. Conventional compliant mortgages accounted for 74% of mortgages issued in May, up from 65% in 2018. On the flip side, FHA-insured mortgages accounted for 14% of mortgages in May. In the past few years it was around 20%. And the share of VA-guaranteed loans fell to 7% in May, up from the 10% average of recent years.
FHA had a market share of nearly 7% of sales of existing real estate in the Greater Johnson City area in the first quarter. The share of cash sales was 38%.
FHA generated 9.7% of existing home sales in the Greater Kingsport-Bristol area in the first quarter, and 32% of sales were in cash. The number of local VA sales was not available.
Real estate professionals say VA loans also have a reputation for receiving low ratings, which can make it difficult to compete in a market with rapidly rising prices. “It is extremely difficult for FHA / VA buyers to be accepted in a situation with multiple offers,” writes a real estate professional in the broker survey. “You’re at the bottom of the hierarchy.”
The Northeast Tennessee Association of Realtors represents more than 1,400 members and 100 affiliates in the Northeast Tennessee – Southwest Virginia region. You can find pending sales, trending reports and regional market research on the NETAR websites at https://netar.us/voice-real-estate-northeast-tennessee.