Ask an Edina Realty Lawyer: How can buyers navigate today’s crowded and competitive market?

Homeownership can be complicated, but we also think it’s one of the most rewarding ventures out there. In our series, Ask an Edina Realty Lawyer, we are hoping to demystify some of the trickier aspects of buying, selling and owning a home.

You may have heard stories about the real estate market and lots of buyer competition for a limited number of properties for sale. While we expect to see an increase in inventory in 2024, we also anticipate continued competition among buyers. In this edition, our lawyers answer some questions that buyers are raising in the current real estate market.

Dear Edina Realty Legal,

I just made a full-price offer on a house, but the seller accepted a different offer. Doesn’t a seller have to accept my offer if I pay full price?

Despite your offer being full price, the seller is not required to accept it. When a seller lists a property, they are simply advertising it. An MLS listing is not an offer to sell the home that can be accepted by simply submitting a full-price purchase agreement. Typically, the buyer submits an offer, and the seller has nearly complete discretion in deciding whether to accept it.

The seller may have received an offer for over the list price and that was the reason your offer was not accepted. And as you likely realized when writing your offer in the first place, there are a lot of things, beyond the price, that you had to decide to include in your offer. Some of those items included whether to do an inspection, what type of financing to use or even whether to use financing at all.

Sellers need to evaluate all terms when deciding which offer is best for that seller. A seller might choose one offer over another because the closing date is sooner, the buyer is paying 100% cash, the buyer did not need to sell their home before purchasing the seller’s home or for various other reasons. While submitting a full-price offer is a good way to get a seller’s attention, it is only one aspect of the contract the seller is considering. Continue working with your real estate agent to come up with the most competitive offer you can make, and hopefully, a seller will accept your offer soon.

Should I forego having a home inspection as part of my offer?

The real estate contracts used in Minnesota and Wisconsin have provisions that allow a buyer to make their purchase contingent on a home inspection. Generally, if the buyer and seller agree to this contingency, the buyer will hire a professional home inspector to conduct a thorough inspection of the property and prepare a report with those findings. The buyer and seller can then negotiate possible repairs and the buyer may have the opportunity to cancel the contract if they are concerned about the condition of the home.

The home inspection contingency has obvious benefits for the buyer, and Edina Realty recommends a home inspection on every purchase. But in a seller-favorable market, we often see many different strategies intended to make an offer stand out from the rest of the crowd. One strategy is to not have the contract contingent on a home inspection. That’s certainly a strategy you can employ, but it comes with some risks.

Keep in mind that homes can have problems not apparent to the untrained eye. A good professional home inspector has the experience and training to see some of the issues the average person cannot. Your REALTOR® is not a professional home inspector and should not be relied upon in lieu of a professional. Even though a seller must disclose problems on the property, there are potential issues that even the seller may not be aware of. If you don’t elect to have a home inspection and later discover a problem with the property, that problem could be your responsibility as the new homeowner.

I’ve heard that I should include with my offer a letter about myself. But I’ve also heard that I shouldn’t do that. Which is correct?

It’s not uncommon for a buyer to include a letter to the seller with their offer. And in recent years, that practice has become somewhat more prevalent. Some agents are of the opinion that a good “love letter” can help sway the seller to choose your offer.

If you have heard that you shouldn’t provide a letter with your offer, that likely comes from concerns about the Fair Housing Act or state laws prohibiting discrimination. The Fair Housing Act prohibits a seller from making a decision on who they sell their home to based on protected classifications, like race, ethnicity, religion, familial status, gender and disability. Some state laws have similar protections that extend to classes beyond that of the Fair Housing Act—for example, Minnesota law protects against discrimination on the basis of sexual orientation.

If a buyer letter contains information about the buyers’ race, religion or something else that might implicate a protected class, that can put the seller in a tricky position. In fact, many sellers specifically request that no letters be submitted with the offers. If you are going to submit a letter with your offer, we recommend that you focus on the home and what you love about it (which sellers love to hear) and stay away from comments that reflect these protected classes.

I made an offer on a house that was accepted. However, I just received the appraisal back, and it is less than the contract price. What can I do now? Can I still buy the house?

It can be disappointing when an appraisal comes in lower than the price you had agreed upon. But just because an appraisal comes back less than the contract price does not mean the deal is done or that the parties are required to renegotiate the price.

While it depends on your specific financial situation, in some cases, a low appraisal will not have any impact on your ability to move forward with the purchase. You may need to bring extra funds to closing, or your mortgage interest rate could be less advantageous, but moving forward with the purchase could still be possible.

Unfortunately, in other situations, a low appraisal may result in an inability to obtain financing for the purchase. Your real estate agent can work with you before submitting offers to discuss options for how to handle a low appraisal situation, including different terms to put into the contract to ensure you can move forward, or perhaps not move forward, with a purchase in a low appraisal situation. It is also a good idea to discuss appraisal issues with your lender to understand what impact a low appraisal could have on a potential purchase, given your specific financial situation.

The Edina Realty Legal Department serves as in-house counsel for Edina Realty and does not represent private clients. This insight is not intended to provide legal advice.