8 Things BUYERS should know in this crazy market.
I had a valuable conversation with a few top producing loan officers and branch managers at my conference this week. These gals and guys were from the hottest markets in the country, Seattle, San Francisco, San Diego, Denver, and Washington D.C., each have been in the insane seller’s market we are in today for a few years. They have been incredibly creative in coming up with ways to get their offers accepted over dozens of competing offers.
My thought coming out of the top producer meeting was that SLC tends to follow larger market trends by 6 to 12 months and we might have LESS inventory in the coming 12 to 18 months than we do today. If that’s true, we should learn from and start implementing some of the strategies these loan officers and their Realtors have utilized to help increase the odds of their buyer’s offers getting accepted.
Here are a few of the tactics they are using as well as my thoughts on how to step up our game and make the offer irresistible to the listing side. Some of which you are likely already using, but probably not all. I would love your feedback and thoughts on these 8 strategies:
1. Tight Deadlines
7 to 10 day inspection and F&A deadlines, close in 14 to 21 days depending on the level of competition for the property.
2. Coordinated Effort
All offers are a coordinated effort between the Realtor and the loan officer. As soon as the offer is sent to the agent, the LO starts texting the listing agent, schedules a call and explains the level of financing due diligence already performed and WHY/HOW we can close in 14 to 21 days. The LOs job is to sell the financing and make the listing agent is comfortable recommending our offer above all others to their seller.
3. Down payment does NOT need to match REPC
REPC typically shows what the client’s ABILITY for down payment, not what they intend on using. For example, let’s assume the buyer is selling a home and netting $150k, but they only plan to put down $50k. The REPC would show down payment based on their ability to put $150k down, rather than the $50k they intend to put down. Another example is a buyer with a $300k investment account and $50k in checking, might have the ability to put down $350k, even though they are only intending to put down $50k. They are writing up the REPC to show their ability for down versus intention for down. What they have found is that if your offering on a $500k home with $300k down, the offer is almost always accepted over the offer with $50k down payment, especially when done in coordination with number 1 and 2 above. Key note here, my loan does NOT have to match the REPC for down payment. We have to match for purchase price and EM, but down payment does not have to match.
4. Market Values Moving Faster Than Appraisals
Prepare clients up front that the home will likely not appraise for purchase price because appraisals are backwards looking and we are making offers in present time on homes that will not close for 15 to 30 days. Basically educating them up front that about one in three appraisals nationally are coming in low and if we want the best homes in the best neighborhoods, price appreciation is happening faster than the appraisals can keep up with.
5. Create a Contingency Plan for Low/High Appraisal
Create contingency plan up front with the client and LO for a low appraisal. In other words, when an offer is made, we can show them here’s what it looks like if you pay over appraised value. Potentially we add a small second or potentially we use some lender paid mortgage insurance. This pre-planning has been effective in having less buyers walk once under contract, this was unanimous in the larger markets, all were doing this consistently with their buyers.
6. Offer Incentives Based on Home Value
Write offers that speak to the buyer’s willingness to pay over appraisal. The addenda would say something like; “buyer hereby offers to pay $1k higher than the highest competing offer on subject property, not to exceed appraised value by more than $10k”.
7. Move Fast and Move Slow...
This is really getting aggressive but essentially solves one of the potential problems for the seller, which is once they sell their home, they often need to contract a new home, which can be difficult in this market. The offer would have a built in rent back agreement, allowing the seller to get their funds from the sale in 14 to 21 days, but giving them up to 60 days rent back. In some cases the buyer is not even charging them for the rent back, depends on how accommodating they need to be for the seller to accept their offer.
8. Take the Backup Offer Seat.
If your offer is not chosen by the seller, request your offer be accepted as back up in writing (not verbally, you want an addenda that guarantees and automatically moves you into first position should offer #1 cancel). The hotter the market, the more rushed buyers feel when house hunting, the higher the fall out because buyers are offering on multiple homes at once, just hoping one is accepted (the shotgun approach), when they actually inspect the home and work through the details they realize the home is not ideal for them for one reason or another, hence the higher cancellation rate.
When I asked how effective these tactics were, the general census was that these tactics double to triple their acceptance rate as compared to a less aggressive standard offer.
I would love your thoughts and love to hear if you think we could implement these strategies together in a better way than we have been over thus far.
This is a guest post by our friend Josh Mettle the director of Physician Lending at Fairways Independent Mortgage Corporation.