Answer: The last few years have ushered in complex and difficult debates locally and nationally about housing and what the role of federal, state, and local government should be in private housing. Nationally, we are dealing with an affordability crisis and locally we’ve debated Missing Middle/EHO.
To me, the most critical and interesting questions center around what government’s role should be in private housing and what, if any, responsibility does government have to homebuyers and sellers. That applies to a wide range of housing-related issues including but certainly not limited to taxation, zoning, insurance, Realtor commissions, and affordability.
Don’t worry, I don’t have a death wish and am not about to open a conversation about government, free markets, and housing affordability a week before the election. This is (hopefully) a more subdued topic.
Buyers Are Foregoing All/Most Due Diligence
One of the unfortunate results of our highly competitive housing market over the last 5+ years is the amount of protection and due diligence buyers have given up purchasing a home. In many home purchases, especially single-family detached, buyers are foregoing inspections and financing/appraisal contingencies to compete. It often shocks me on my listings how many buyers choose not to do a home inspection, even in scenarios where a pre-inspection (inspection conducted prior to making an offer) is possible.
Buyers accepting the risk (sometimes significant risk) of no contingencies (contractual protections) is somewhat of a catch 22 – they do it because other buyers they’re competing against are doing it and they in turn become the buyers that cause other buyers to make similar decisions. When the market is at its most competitive (generally the first half of the year), I would estimate that at least 2/3 of homes (probably more) in Northern VA that go under contract within the first week on market (most homes) do not have any contingencies and many of those buyers never do a home inspection.
Should Due Diligence Laws Be Passed?
Until we move into a less competitive market, which seems a long way off due to systemic supply issues and robust demand in Northern VA/DC Metro, I don’t see this pattern of homebuyer risk changing in a meaningful way.
So, I wonder out loud (and via the poll below) – should Virginia pass a law that gives every homebuyer a non-negotiable due diligence period after they’re under contract? They can use this time, at their option/cost, to conduct a home inspection, confirm a property is insurable, and more.
To provide comfort to sellers and maintain an element of free market negotiations to this, a required due diligence period can be coupled with a non-refundable due diligence deposit if a buyer voids within this period. In a competitive market, buyers can increase this deposit to increase the value/safety of their offer. For example, a highly motivated buyer can offer a $10,000 non-refundable deposit if they void.
Should Virginia do more to protect homebuyers and pass a law that gives all homebuyers a non-negotiable due diligence period (let’s say 3-5 days) with a right to void?
Participate in the poll at ARLNow
Due Diligence Laws Already Exist
The idea of required due diligence periods is not new locally or nationally. Until last year, Virginia condo and HOA law required that buyers be given a three-day review period for Association documents (by-laws, budget, reserves, etc) until that law was accidentally edited out (discussed here), and DC and Maryland still operate with those laws in place. My question – if Virginia thought it was important enough to protect buyers by requiring a three-day review period for them to “inspect” the Association, should Virginia apply the same logic to the property itself and allow for a mandatory inspection period of the home?
I am not familiar enough with real estate laws in states outside the DMV to comment with authority or detail, but it’s my understanding that some states like North and South Carolina and Massachusetts have some type of required due diligence period for buyers.
I Support a Due Diligence Period
I generally lean free market over government involvement, so this opinion runs a bit counter to that but I also think I can make a case for free market dynamics to still play out for buyers and sellers.
I would like to see Virginia pass a law, similar to the (inadvertently defunct) Association document review period (non-negotiable three-day review period following receipt of Association docs, with right to void) that requires all real estate transactions to include a mandatory 3-5 day due diligence period that allows for buyers to conduct, if they choose, a professional home inspection. It would put a stop to what I consider a downward spiral in buyer risk tolerance resulting from a highly competitive housing market and is an overall net benefit for Virginians (greater good theory).
I think that a non-refundable deposit tied directly to the due diligence period sufficiently counterbalances the free-market dynamics the State is taking away. In many cases, buyers would offer small/modest non-refundable deposits ($100-$1,000), but a highly motivated buyer who truly does not need a due diligence period (e.g. a cash buyer purchasing an as-is tear down with no need for an inspection) can offer a massive non-refundable deposit of $50,000 without worry. I would even argue that the scenario where the seller has a large non-refundable deposit protecting the due diligence period is more favorable for a seller than the current practices.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
