4 Ways Market Conditions Affect Real Estate Closings

When it comes to purchasing or selling a home, prevailing market conditions can have a big impact on many of the legal aspects of the transaction. The market for home purchases is made up of two main players.  These include buyers searching for the best houses for the lowest cost, and sellers who are looking to maximize the sale prices of the homes they are putting on the market.  In the simplest and most general terms when in a sellers market, there are more potential buyers than there are homes for sale, so the competition to purchase a home is fierce. In a buyers market, the opposite is true, so there are more homes for sale than buyers. 

Whether a real estate transaction takes place in a sellers or buyers market can also have certain implications for the real estate closing.

Here are a few ways that the market conditions may affect your real estate closing:

1. Fees

If you are in a sellers market, high competition among buyers means that buyers may agree to cover more of the costs typically covered by the seller. For example, in Broward and Miami-Dade counties, it’s typical for the buyer to select the title company and pay the title insurance premium in normal times. Buyers would also typically pay for the lender’s title insurance and the closing fee set by the title insurance company.  However in a seller’s market the buyer may agree to cover more of the transaction costs to make their offer more attractive to the seller.  The additional costs they may agree to cover may include property taxes, the agent’s commission, pest inspection fees, courier fees, estoppel fees for homeowner’s associations and documentary stamps.

In a buyers market, the opposite is likely to happen.  A seller, faced with few buyers and potentially having a property listed for sale for a long time will be willing to cover more if not all the title and other fees associated with the transaction. 

In either scenario, buyers and sellers can negotiate the terms and conditions of sale including who pays for what transactional costs.  While negotiations can be conducted directly by buyers and sellers, those represented by experienced Florida real estate attorneys typically fare better.  This is because real estate attorneys are better equipped to assess the options and rights of their client within a legal framework and make decisions that comply with both the law and are in their clients best interest.  

2. Mortgages

In a sellers market, buyers are more likely to face a prequalification requirement from sellers before an offer is accepted on a property. This means that a bank has agreed to provide financing to cover the purchase of a house or equal or more value to the house on which the buyer is making an offer.  Sellers are able to impose this requirement (or simply refuse offers from non-prequalified buyers) in a sellers market because the seller has a pick of multiple buyers for the property.  

In a buyers market, the financing tables are turned and the buyer may more easily negotiate a mortgage contingency into the purchase agreement.  This means that instead of being qualified for a mortgage prior to committing to a purchase, a buyer may terminate the purchase agreement without penalty and receive a full refund of their deposit in the case that they cannot secure a suitable mortgage.

“Whether a real estate transaction takes place in a sellers or buyers market can also have certain implications for the real estate closing.”

3. Housing Prices

Perhaps the most obvious impact market conditions can have on a home purchase is on a house’s price.  Sellers’ markets are characterized by higher demand to buy a house than there is inventory in the market.  This situation drives up prices since it is harder to find a house due to the lack of supply in the market. On the other side of the spectrum, buyers’ markets have a large supply of houses and fewer buyers available who are able or willing to make a purchase.  This drives down the prices as sellers seek ways to make their properties stand out in the market as an attractive option for the limited number of buyers available.  

4. Contingencies

In buyers’ markets, transactions are more likely to include stipulations that allow buyers to back out of sales contracts in cases where certain conditions are not met by the seller.  Buyers’ can make these demands of a seller when a property has been listed for a relatively long time without the seller being able to find a suitable buyer.  Examples of these contingencies, which can put a substantial burden on the seller, include: mortgage contingencies, home sale contingencies, title contingencies, appraisal contingencies and inspection contingencies.  In all cases, the buyer is able to back out of the sale without forfeiting the earnest money deposit, if they or the seller are unable to meet certain conditions.

South Florida Law

If you are purchasing or selling a home in either a buyers market or a sellers market, it is advantageous to seek out the advice and legal support of an experienced closing attorney. Although the market conditions can affect your real estate closing, South Florida law can help ensure that everything goes smoothly. Our attorneys can negotiate the most favorable terms available given the market conditions to ensure that you are not leaving important concessions and money on the table unnecessarily.  We have boutique firm attention to detail and big firm resources to ensure that your transaction closes in a timely and efficient manner. Whether you are the buyer or seller in an upcoming transaction, reach out to us for support by phone (954) 900-8885 or via our contact form. 

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