California home prices soar to new highs

 

California home prices soar to new highs

By Christina Mlynski, HousingWire.com   • June 17, 2013 

 

California home prices increased by the most in 33 years as a result of strong sales growth in higher-priced markets and continued housing supply shortage, pushing up median home prices in May, the California Association of Realtors said.

Closed escrow sales of existing, single-family detached homes totaled a seasonally adjusted annualized rate of 431,370 units, the report noted.

Meanwhile, sales were up 1.9% in May, up from a revised 423,420 units in April, but down 3.6% from a revised 447,530 last year.

The statewide figures represents what would be the total number of homes sold during 2013 if sales maintained the May pace throughout the year and is adjusted to account for seasonal factors that influence home sales, CAR explained.

“It’s encouraging to see median home prices across most parts of the state continuing to recover. The Bay Area, in particular, has been experiencing strong price appreciation, thanks to the region’s robust economic growth, extremely low housing inventory, and an increasing demand from international buyers,” said CAR President Don Faught. 

He added, “San Francisco County’s median home price, for example, increased 28% from last May and has just surpassed its previous record high reached in May 2007.”  

The median price of an existing, single-family detached home rose to $417,350 in May, up 3.6% from $402,706 in April and also rose 31.9% from the previous year, marking 15 straight months of annual price increases, CAR noted.

The year-over-year increase was the highest since at least 1980, when CAR began tracking the data.

“While home prices are increasing at levels above those observed in 2006-2007, the fundamentals of the housing market are much more solid than what we experienced a few years ago,” said CAR chief economist Leslie Appleton-Young. 

She added, “More home buyers are putting down larger down payments, and many of them are opting for more stable loan products.” 

However, not all cities within California are showing such positive housing recovery news.

For instance, Mortgage Resolution Partners recently entered into contracts with additional municipalities to form the use of eminent domain programs, including Richmond, Calif.

The use of these programs is to seize or restructure underwater residential mortgages, many of which are bundled into private-backed securities.

The available supply of home for sales dipped in May, and was down markedly from a year ago. 

The May Unsold Inventory Index for existing, single-family detached homes was 2.6 months, down from 2.8 months in April and down from a revised 3.6 months from the previous year.

Meanwhile, homes sold quicker in May, with the median number of days it took to sell a single-family home decreasing to 27.1 days in May, down from 27.9 days in April and also dropping from a revised 45.7 days last year, the report noted.

Mortgage rates ticked up in May, with the 30-year fixed-mortgage interest rate averaging 3.54%, up from 3.45% in April, but down from 3.8% a year earlier, according to Freddie Mac. 

“Historically low mortgage rates have reduced monthly mortgage payments substantially, making owning a house more affordable, even with rising home prices,” Appleton-Young concluded. 

RealtyTrac Foreclosure Report Shows 28% Decrease From May 2012

Foreclosure actions increased by 2.0 percent in May from April’s 75 month low point for foreclosure activity according to RealtyTrac’s U.S. Foreclosure Market Report released June 11. However, the good news is that May 2013 foreclosure filings were still 28 percent below May 2012 filings.

RealtyTrac reports that approximately one in 885 homes were in some stage of foreclosure in May. This does not mean that 1 in 885 homes was lost to foreclosure, but it does indicate that documents related to some phase of foreclosure (Notice of Default, Notice of Trustee Sale, and Bank Reposession) were filed.

Actual lender repossessions (REO) increased by 11 percent in May, but were down by 29 percent as compared to May 2012. 33 states reported increases in REOs with North Carolina, Oregon and Wisconsin having the highest numbers of REO properties added.

Judicial Foreclosure States Lagging In Clearing Foreclosure Inventory

Foreclosure starts were up by 4 percent in May, but were 33 percent lower than for May of 2012. States using judicial foreclosure proceedings were 5 of the top 6 states for foreclosure filings. The state of Nevada, which uses non-judicial foreclosure proceedings, was second after Florida and ahead of Ohio, South Carolina and Illinois.

In general, judicial foreclosure proceedings take longer to complete than non-judicial foreclosures. This results in homes being unavailable for sale for longer periods of time. Lenders are required to complete the foreclosure process and in some cases, they must await expiration of a redemption period before a foreclosed home can be repaired and sold.

In states using non-judicial foreclosure proceedings, the time between the initial foreclosure filing and the foreclosure sale can be as little as three to four months. Quickly turning over foreclosed homes is helpful for improving regional housing markets and making more homes available for purchase. Economists have recently cited low inventories of homes as holding back housing markets in some areas.

California is NOT a judicial foreclosure state, and bank owned properties are a very small percentage of our present inventory.

A lot has been said – by doom and gloom bloggers, and their followers – over the past few years, about the so called “shadow inventory” of foreclosure houses, just waiting for prices to come up before being unleashed upon the public – thereby pushing prices back downward.

If such a myth was anywhere close to being accurate, this past 12 months of lower housing inventory WOULD have been the ideal time for lenders to have taken advantage of.  Instead, the reduction of the number of the REO’s ( Bank owned properties.) coming onto the local California real estate market has actually worsened the problem – helping to make prices rise, in almost unprecedented fashion.

What’s Ahead For Mortgage Rates This Week – June 17, 2013

Last week’s news was relatively quiet with no data significant to the mortgage lending released until Wednesday, when the federal government announced a $138 billion budget deficit for May.

According to the U.S. Treasury this figure is 11 percent higher than for May of 2012, but the federal budget is expected to come in with less than a -$1 trillion deficit for the 2013 fiscal year, which runs from October to September.

The Treasury estimates that the 2013 budget deficit will come in at approximately -$642 billion, well below fiscal 2012′s deficit of -$1.1 trillion. The federal budget has been running deficits over -$1 trillion since 2008.

Employment Market Continues To Strengthen

On Thursday, the Weekly Jobless Claims report brought good news; jobless claims fell from the prior week’s 346,000 jobless claims to 334,000 jobless claims. This was also less than expectations of 350,000 jobless claims. As more workers gain steady employment, this will enable more would-be home buyers to become active buyers.

May Retail sales also showed slight improvement as they moved from 0.60 percent from April’s 0.10 percent.

According to Freddie Mac’s Primary Mortgage Market Survey (PMMS), the average mortgage rate for a 30year fixed rate mortgage rose from last week’s 3.91 percent to 3.98 percent with discount points unchanged at 0.70 percent. The average rate for a 15-year fixed rate mortgage rose from last week’s 3.03 percent to 3.10 percent with discount points holding at 0.70 percent.

What‘s Coming Up This Week

Next week’s economic news schedule has a number of reports due including Wednesday’s FOMC statement and Fed Chair Ben Bernanke’s press conference. This meeting and press conference are significant as any move by the Fed to reduce or cease its current quantitative easing (QE) program could cause mortgage rates to rise further.

Monday’s news includes the Home Builders Index for June. Tuesday brings the Consumer Price Index (CPI) for May and the Core CPI, also for May. The indices measure prices paid by consumers for goods and services; the Core CPI eliminates the volatile food and energy sectors included in the CPI. Rising or falling consumer costs influence how much discretionary income consumers have for saving toward buying a home.

No news is scheduled for Wednesday other than the FOMC statement and press conference.

Thursday brings the Existing Home Sales Report, Weekly Jobs Report, Freddie Mac PMMS and Leading Indicators. These reports are expected to provide news about U.S. housing markets, mortgage rates and economic influences impacting consumers.

There is no economic news scheduled for Friday.

Orange County a Bright Spot in Economic Outlook, Economists Say

Cuts in federal spending and insurance company losses won’t hold back a surging Orange County economy largely thanks to a robust local housing market, Chapman economists forecast.

Posted by Paige Austin, California Patch (Editor), June 13, 2013 at 07:03 pm

 A revived housing market will propel a continuing economic recovery for the state and Orange County in 2014, with only the federal government proving a drag on the revival, Chapman University economists said this week.

“Our economy — California and Southern California — has been underperforming the U.S. growth since 2007, since the recession started,” said Esmael Adibi, director of the university’s Anderson Center for Economic Research. “But last year was the first year that job creation surpassed job creation at the U.S. level, and this year and next that trend is going to continue mainly because our biggest drag was in the housing market and now it’s coming back.”

The housing market’s resurgence also boosts other markets such as construction and retail with homes being built and residents filling them with furniture, Adibi said.

“The only sector to be under pressure is the federal government with sequestration,” Adibi said, referring to the automatic spending cuts approved by federal lawmakers.

“In the short term that’s going to be negative for the economy,” Adibi said. “But over the long term it is healthier for our government to have a reduction in the deficit.”

The “only sector that’s going to show job losses is the federal government, which some people say is a blessing because they’ve grown too much,” Adibi added.

Federal money will fund the state-managed Affordable Care Act, which will expand insurance coverage, but that too will offer mixed blessings to the economy, Adibi said.

“Like anything else you have positives and negatives,” Adibi said. “Some people will gain and some will lose. Hospitals will benefit from the Affordable Care Act, which will really kick in 2014, but insurance companies in some areas will suffer a little bit.”

Physicians should see an increased demand, but small business owners will have to pay more to cover employees, Adibi said.

“Some (small business owners) will be able to pass it on to consumers, but some will have to eat it,” Adibi said.

Orange County’s economy will also benefit from an improving tourist industry, Adibi said.

“Obviously we see strength all over the state, but Orange County is going to benefit proportionally better than the state as a whole … with other sectors outperforming the state such as healthcare, leisure and hospitality, thanks to destinations like Disneyland and Knott’s Berry Farm,” Adibi said.

Chapman’s economists say housing affordability is at an all-time high nationally.

Job growth was above average at 2.3 percent last year, the economists say.

Construction spending is expected to increase by about 16 percent in the coming fiscal year, the economists say.

The Chapman forecast projects a gain of 32,000 jobs in Orange County, or a growth rate of 2.3 percent, and 307,000 jobs in the state, or 2.1 percent higher, this year. Construction jobs should increase at 4.3 percent in Orange County, the experts predict.

The median family income in the county is expected to rise from $83,000 last year to $88,000 in 2014.

Low mortgages rates and home prices coupled with rising income will fuel higher demand for housing, the experts predict. A corresponding increase in housing prices will follow.

Home prices are forecast to rise by 8.8 percent in Orange County, compared with 7.8 percent statewide.

- City News Service 

Why It’s Critically Important To Have A Home Inspection

Many home buyers have found the perfect house, signed on the dotted line and may think they’ve watched enough home improvement shows to know if the home they’re getting is in good shape. Unfortunately, some buyers make the mistake of skipping a home inspection in order to save a little cash.

Even if a home has already stolen your heart and you’re ready to pay for it as-is, you need to bite the bullet and hire a home inspector to let you know what repairs and financial repercussions await you.

Why You Should Hire A Home Inspector

You might know a thing or two about home remodeling and repairs. However, most people are not experts on the inner workings of a home. That is why it’s important to hire a professional to search for potential furnace issues, electrical wiring mishaps, plumbing weaknesses or roofing deterioration to name a few.

While a home might look like it’s in perfect condition on the surface, there could be major issues hiding beneath its façade. That’s why it really is imperative for your safety that you hire an inspector to scrutinize the bones of your home. Understanding any imperfections may also help you budget for immediate and future repairs.

When to Schedule the Home Inspection

Once you’ve signed a purchase contract, you’ll want to schedule a home inspection before the inspection period has ended. Even though you’ve signed the offer, an inspector could just find something that you just cannot live with or afford to fix.

While you would normally schedule an inspection after you’ve signed a contract, it’s important to have an inspector or two picked out beforehand. Ask your real estate professional or friends and family for referrals and then contact the inspectors for pricing and a list of what they will and will not cover at the inspection.

Once again, remember that the cheapest price may not be the best deal on home inspections.  Have a good understanding of what, and who, you are investing in.

Even if you do know a lot about the structure, plumbing and wiring of houses, don’t let your ego get the better of you. It’s important to shell out the additional money to hire an inspector and cover your assets. You’d hate to end up with a home that needs major renovations and not have known about it.

For more information on hiring a professional for your South Orange County home inspection, shoot me an email or give me a call.

Homeowners — Are You Making These Mistakes Planning Next Year’s Taxes?

Filing your taxes can be a complicated and confusing process. If you are a home owner you may have many different home tax deductions and credits to consider.

Since we recently passed the filing date for 2012 taxes, it may be a good time to plan for next year and get your tax tracking systems in place. Check carefully to make sure that you are not making any of these common homeowner tax mistakes – which could cost you money or get you in trouble with the IRS.

Miscalculating Your Home Office Tax Deduction

If you work from home, you will be able to deduct a percentage of your housing costs for your home office. However, most people don’t know how to calculate this and don’t realize that it also has to be recaptured when you eventually sell your home. You will only want to claim it if it is worth it, so make sure you know exactly what you can write off.

Failing To Keep Track Of Home Expenses

Don’t forget to keep a record of home maintenance, repair expenses and any other relevant documents as you go along.   The money you spend on improving your property can help offset future capital gains tax. Keeping good records will save you a lot of headaches when tax time comes around.

Forgetting To Pay Tax On Capital Gains

If you have sell your primary residence this year, you will need to pay capital gains tax on any profit that you have received. Capital gains are the amount that you gained on the property’s value – so if you bought it for $150,000 and sold it for $300,000, your capital gains are $150,000. You may be able to exclude $250,000 of any profits for taxes, or $500,000 if you are a married couple if this exclusion stays the same as in 2012.

Deducting The Wrong Year For Property Taxes

Remember that you must take the tax deduction for your property taxes in the year that you have actually paid them. No matter what the date is on your property taxes bill, you should enter the amount that you paid in the calendar year. If you confuse this part, you might end up claiming the incorrect amount for the year.

These are just a few of the common mistakes that home owners can make when filing their taxes. Avoiding these mistakes will ensure that you pay the right amount and avoid any hassle from the IRS.  Also, please double-check all of these suggestions with a qualified, licensed tax preparer in the South Orange County  area.

Increasing May Jobs Report Shows Strengthening Economy

The U.S. Department of Labor released its Non-Farm Payrolls and National Unemployment Rate reports Friday showing 175,000 jobs were added in May, which surpassed expectations of 164,000 new jobs and April’s reading of 149,000 jobs added. The jobs added in May were largely from the private sector.

However, the national unemployment rate for May was 7.60 percent, one-tenth of a percent higher than expectations and the April reading of 7.50 percent. The rise was attributed to more people entering the workforce as opposed to people losing jobs.

420,000 workers joined the workforce in May, which pushed the civilian participation rate in the labor market to 63.4 percent; the highest participation rate since October 2012. A rising participation rate suggests that more workers believe they can find jobs and have joined or returned to the labor market.

Economists Pleased With Increasing Jobs In Difficult Environment

Economists were pleased to see jobs increasing against an environment of higher taxes, a soft global economy and budget cutbacks in the U.S. government.

A lingering issue for U.S. labor markets is the number of people looking for full time work, but who are unable to find full-time employment. When these workers are added to the ranks of the unemployed who are actively seeking work, the actual unemployment rate almost doubles to 13.8 percent for May.

The national unemployment rate is based on workers who are actively seeking work. Many U.S. workers stopped looking for work after years of unemployment.

Fed May Review Quantitative Easing Program Soon

These reports don’t provide a clear indication of what the Federal Reserve may do regarding its current monetary policy; the Fed is currently purchasing $85 billion a month in U.S. Treasury bonds and mortgage-backed securities (MBS). This effort is intended to keep long-term interest rates, including mortgage rates, lower.

The Fed has indicated that it will review its quantitative easing (QE) policy relative to improvements in the economy. In recent months, the Federal Open Market Committee of the Federal Reserve (FOMC) has discussed lowering or eliminating its QE efforts, but so far is maintaining its current level of QE and maintaining the federal funds rate at 0.250 percent.

While housing markets are improving, the jobs sector is moving at a slower pace. This suggests that home prices could rise even faster if more consumers had sufficient income for buying a home.

How to Avoid Seller’s Remorse in Real Estate

How to Avoid Seller’s Remorse in Real Estate, by Brendon DeSimone

In many real estate markets around the country, sellers are in the driver’s seat again. Inventory is low.

Houses are often selling for more than asking price. After years of a sluggish buyers’ market, many real estate agents are trying to get their would-be sellers to list their homes now.

It seems like a great time to sell. But how can you know for sure if it’s a great time for you to sell?

If you experience buyer’s remorse, you can usually get out of a contract through contingencies or other out clauses. If you start to feel seller’s remorse, you don’t have that luxury. So you must be absolutely sure you’re ready to sell.

To avoid seller’s remorse, and to make the sales process go as smoothly as possible, keep these strategies in mind.

Develop a solid pricing strategy

Agents often encourage their sellers to list their homes competitively, so that the market receives it well. Sometimes sellers see that as the agent pushing for a quick sale. Many times, it’s truly the agent looking out for the seller’s best interests.

Whatever the scenario, pricing is the most important discussion a seller can have with an agent. When there’s a disconnect on price, raise it as a red flag from the get-go. If you find yourself resisting your agent’s suggested price, talk through the options or get a second opinion.

You might try starting out with a higher number. This might be against your agent’s better judgment, but it can be worth a shot. If there’s no activity in the first few weeks, you can always reduce the price.

Alternatively, sellers who increase their asking price after the home has gone on the market are often seen as frenetic, lacking a strategy and having a clear disconnect with their agent.

Bottom line: If you haven’t had a serious pricing discussion with your agent or you aren’t sold on your list price, don’t go on the market.

Have a clear post-sale plan

The sellers of an Essex, CT home heard the market there was hot and that they could get the price they tried but failed to get just six months earlier. They’d already done the appropriate clearing out, painting, and fix-it work, and even had the property inspected. So, for them, going on the market was easy.

However, they didn’t expect to receive three offers, all of them above the asking price, within hours of their first open house. The buyers they chose wanted to close in 30 days.

The problem: The sellers had nowhere to go. They didn’t have a plan. Like many sellers today, they heard the market was strong again. And after dreaming for years of finally getting what their home is worth, they jumped in while “the getting is good” without thinking it all the way through.

Be ready to negotiate with buyers

Feeling strong and in the driver’s seat, the Essex homeowners decided to wait and see if they could get an even higher price once they had a moving plan in place. In an effort to keep the deal together, the sellers’ listing agent negotiated a quick close with a 30-day-free rent-back and another 30 days rent, in which the sellers would pay the new buyer’s PITI (Principal, Interest, Taxes and Insurance). It was a win-win for all.

While this couple in Essex had the luxury of a competitive bidding situation, it may not always be the case. That’s why having a clear plan in place for all conceivable outcomes and a willingness to negotiate can help you get through the sale process successfully.

When in doubt, stay out

Home selling is happening quickly in many parts of the country. While this is great news for the housing market and most homeowners, sellers need to plan for the sale months in advance. Hooking up with a good local agent early on in the process and staying engaged is the best way to approach this new market.

If you have any doubts about your physical or financial situation, hold off on listing. Watch from the sidelines, and only jump in when you’re truly ready. The biggest mistake a seller can make is to go on the market and fail to sell — at a time when everything else is selling.

Brendon DeSimone is a Realtor and one of the nation’s leading real estate experts.  He has collaborated on multiple real estate books and his expert advice is regularly sought out by print, online and television media outlets including FOX News, CNBC, Good Morning America and Forbes. An avid investor himself, Brendon owns real estate around the US and abroad. 

What’s Ahead For Mortgage Rates This Week — June 10, 2013

Last week’s economic reports provided a mixed bag of results. On Monday, the Department of Commerce reported that construction spending increased by 0.40 percent in April and fell shy of the expected reading of 1.0 percent, but exceeded the March reading of -0.80 percent.

Home Prices Increase Fastest Since 2006

On Tuesday, CoreLogic released its Home Prices reported that the national average home price had increased by 12.10 percent year-over-year in April. The comparable year-over-year reading for April 2012 was 11.00 percent. This represents the fastest pace of home price increases since 2006.

The national average home price expanded by 3.20 percent as compared to March,  but average prices grew faster in the West, which is experiencing a pronounced lack of available homes and developed land for building.

New Jobs Created Showing Improvement Over April Revisions 

ADP released its private-sector Payrolls Report for May on Wednesday; 135,000 new private sector jobs were added as compared to investor expectations of 170,000 jobs added in May. The May reading surpassed April’s downwardly-revised reading of private-sector jobs added.

Friday’s Jobs Report, issued by the Bureau of Labor Statistics, consists of the Non-Farm Payrolls Report and the National Unemployment Rate. Non-Farm Payrolls added 175,000 public and private sector jobs and surpassed both the consensus reading of 164,000 new jobs and the prior week’s reading of 149,000 jobs added. The National Unemployment Rate ticked up from 7.50 to 7.60 percent. The Department of Labor attributes this increase to more people joining or returning to the labor market.

Investors Watching Fed Mortgage Backed Security Buying Activity Closely

The Federal Reserve Beige Book Report was also released Wednesday. It contained no surprises and noted modest to moderate economic growth in 11 of 12 Federal Reserve Districts. The Dallas Federal Reserve District reported strong growth, but investors will be watching next week’s Federal Open Market Committee (FOMC) meeting closely for proposed changes to the Fed’s current policy of buying bonds and mortgage backed securities (MBS) with the goal of keeping long term interest rates lower.

Thursday’s Primary Mortgage Market Survey brought disquieting news of rising mortgage rates. Freddie Mac reported that the average rate for a 30-year fixed rate mortgage had risen from the prior week’s rate of 3.81 percent to 3.91 percent. Discount points fell slightly from 0.80 percent to 0.70 percent with buyers paying all of their closing costs. The average rate for a 15-year fixed rate mortgage rose from last week’s average rate of 2.98 percent to 3.03 percent with discount rates remaining the same at 0.70 percent for buyers paying all of their closing costs.

What‘s Ahead for Next Week

There is no news scheduled for release on Monday. The rest of the week’s calendar includes the NFIB Small Business Index on Tuesday and the Federal Budget for May on Wednesday. Thursday’s scheduled releases include Weekly Jobless Claims, Average weekly mortgage rates as reported by Freddie Mac, and Retail Sales for May. Friday’s schedule includes the Producer’s Price Index for May and June’s Consumer Sentiment Report.

Escalation Mania in Local Real Estate Sales?

Escalation Mania? by Benny L. Kass. RealtyTimes.com

Escalation is back.

Sellers are delighted to get offers sometimes thousands of dollars higher than their initial listing price. And buyers are often frustrated when they lose out on their dream house to a higher bidder.

How does escalation work? Let’s take this example. Sellers list their three bedroom house for $450,000. Their real estate agent has done her homework and believes it is a fair price. There is an open house on Sunday, and 20 people show up. Two couples express an interest and each submit an offer. In the Washington metropolitan area, it is customary for a buyer to submit an offer, and the seller has three options: accept the offer, reject the offer or counter the offer with different terms.

Since each of the potential buyers are represented by either a different real estate broker or an attorney, they should have access to a form dealing with escalation.

The first potential buyers offer $450,000, with a contingency for obtaining an 80 percent loan, but adds in the escalation form that they are prepared to increase their offer by $1000 over any other offer, but in no event shall the offer exceed $460,000. The specific language in the form states: “in the event the Seller receives one or more additional bona fide offers to purchase the Property with terms acceptable to Seller…” which results in the net proceeds greater than Seller would get under the present offer, “then the sales price stated in this Offer shall automatically increase to an amount which generates net proceeds of sale to Seller equal to $_______ (the “Escalating Factor”) in excess of the highest net proceeds of sale generated in such Other Offers.”

What happens if the Seller accepts the higher price? The form provides three options for the seller. First, the 80 percent loan will remain the same, but the buyer will pay the increase in cash at settlement; second, the loan will automatically increase to be 80 percent of the new sales price, or third, the loan will increase by a smaller amount and the buyers will pay the difference in cash.

The form also requires the Seller to provide the Buyer with a copy of sufficient documentation to justify the Sales price increase. What exactly does this mean? Does the Seller – through his real estate broker – have to give the escalating buyer a copy of any sales contract offers showing that the price has already been escalated? Is this a potential invasion of privacy of the other potential buyer?

Buyers should be very wary of escalation clauses. They are asked to sign a legalistic document typically late on a Sunday evening, after they have spent the afternoon viewing numerous houses. Here are some suggestions buyers should consider when confronted with any real estate transaction – especially one which involves a possible escalation.

•Make sure you have proof that there is, in fact, another contract offer higher than yours. While rare, I have heard of unscrupulous sellers falsely claiming higher prices without producing “sufficient documentation”.

•Make sure you will qualify for a higher loan if you have to escalate your offer. It is a good idea to get a preliminary assessment from a mortgage lender, before you even start your house hunting, so that you will know the range of your potential purchase. But, for example, if your lender tells you that you can qualify to buy a $500,000 property, don’t let anyone know about that until after you sign a contract. I have seen too many over-anxious buyers tell the potential seller (or seller’s agent), I can qualify to buy a house up to $500,000. Clearly, with the information, the seller will want to push the buyer up to that dollar mark.

•Try to have a contingency giving you the right to back out of the contract if the lender’s appraisal is lower than your contract offer. Currently, some appraisals are coming in low and lenders are reluctant to challenge any erroneous valuations. ( Note from Bob Phillips:  Most of today’s listing agents, however, will try to counter such a contingency out of the transaction. If they do, and you accept, be aware that you, as the “winning bidder” will have to come up the additional cash, as part of your down payment.)

•You must have a contingency for a home inspection. Brokers may tell you that the seller will not accept such a contingency. If that’s the case, walk away. I know of too many buyers who did not have the home inspected, only to discover thousands of dollars of needed repairs after they went to settlement. A home inspection contingency benefits the seller, also. Should a buyer complain about a problem after settlement, the seller usually says. “You had an inspection, and could have walked away from the contract. If you have a problem, sue your inspector.”

•You must have a contingency for obtaining financing. While mortgage rates remain historically low, lenders have become very cautious and are requiring credit standings (FICO scores) to be much higher than in the past in order to commit to a loan.

Lawyers are taught in law school that “real estate is unique.” That may be true in a court of law, but in the real world, if you can’t buy that escalated home, you will soon find another one that you may even like better. When you buy a car, you usually have a three-day cooling off period. Unless you include the contingencies recommended above, once you have a signed real estate contract, it is difficult – if not impossible – to cancel.

Be careful to not get caught up in the frenzy of the escalation process.