Dreaming of dollars when what’s needed is more sense

Hot real estate markets can mean high home prices, and that’s great for home sellers. But all sellers will not benefit equally. Also, extreme markets can be risky.

Here’s what to watch out for:

Don’t assume that you will receive a huge price for your home. The media tend to report the excesses in the marketplace. You’ll see a listing that sold after 35 offers were made or one that sold for hundreds of thousands of dollars over the asking price. You’re not likely to find reports about the listings that sold with only one offer. Yet many homes sell this way.

Even if you do get a flurry of high offers, you could end up selling for a much lower price. The number of failed transactions usually climbs during a sizzling market. For example, a home recently sold in the Oakland Hills in Northern California for considerably more than the listing price. The offer that was accepted was $100,000 higher than the next-best offer. Within a day, that buyer backed out. The seller’s euphoria waned when $100,000 of profit evaporated overnight.

In frenzied markets, buyers feel pressured to push their bids higher to be competitive. It’s not uncommon for buyers to break through their financial comfort zone in the peak of a multiple-offer contest. After more sober consideration, some of these buyers realize they made a mistake and withdraw from the contract.

Sellers in this situation wonder whether they’re entitled to keep the buyers’ good-faith deposit money. You’d need to consult an attorney for the answer. If the purchase contract includes an inspection contingency, the buyers may be able to back out without penalty, depending on how the contingency is written.

Before you count on the proceeds from your sale, make sure that the buyers have removed their inspection contingency. Buyers who are particularly generous at the offer stage could end up settling the score a bit by asking the sellers to repair defects found during their inspections.

Beware of offers made without contingencies. This may seem like a seller’s dream. However, no-contingency offers can lead to trouble, especially when the buyers don’t understand what they’re getting themselves into.

For example, if the contract doesn’t have an appraisal contingency and the property appraises for less than the purchase price, the lender might not be willing to give the buyer enough money to close the sale. If the buyer has enough cash to make up the difference between the purchase price and the appraised value, and he’s willing to do so, the sale can close. But if the buyer is short of cash, you may have to reduce the purchase price to keep the deal together.

Letting a buyer purchase your home without the benefit of an inspection contingency can be very risky, particularly if there were no presale inspection reports for the buyer to review before making an offer. What happens if the buyer finds significant defects in the property soon after closing? That is another legal question for a knowledgeable real estate attorney. The seller could have liability, or face an unpleasant legal hassle after closing. It’s best to counter an offer that does not include an inspection contingency to provide the buyer an opportunity to inspect.

You can minimize your risk somewhat by providing presale inspection reports. But these shouldn’t be a substitute for a buyer’s inspection.