Posted by Kait Spurrier ● March 23, 2021
Suggestions to Strengthen Your Offer on a House Series: Part 2
Part 2: Understand the Contract & Contingencies.
Co-authored by Jennie Kussart of Re/Max Aspire
Check out these 5 suggestions that can strengthen your offer on your home. Beneath each suggestion, you can find details from both the realtor and mortgage lender side of things.1. Consider getting a home inspection prior to going under contract, and then waive the home inspection (if you have time and the seller allows).
- Jennie, REALTOR®: If the seller will allow you to do a pre-inspection, it can allow you to waive the home inspection. This will make your offer more appealing, while still giving you an idea about any potential problems the home you are looking to purchase may have. There are a few drawbacks to this option: the inspection most likely will not be as thorough or as long as a regular home inspection, the seller may not give you access to do this in the first place, you may not have enough time to get this accomplished prior to submitting your offer, and you may end up spending money on a home inspection for a home you may not be given the opportunity to purchase.
- Kait, Mortgage Lender: The majority of loan programs do not require a home inspection, so this most likely will not make a difference with your financing. However, your lender most likely will require an appraisal. Please note this is not the same thing as a home inspection, and not a substitute. If you have any questions, please contact your loan officer.
2. Consider waiving the appraisal contingency, but understand the risks first.
- Jennie, REALTOR®: I typically do not recommend clients doing this, unless their lender does not require an appraisal. This is considered more competitive to the seller because if the home doesn’t appraise, the buyer would need to pay the difference. The seller would still receive the same amount of money in this situation. If you are willing to take this risk, the listing agent may ask you for proof of funds to be able to cover the difference.
- Kait, Mortgage Lender: Most loans require an appraisal for lending purposes. However, there are instances where a borrower could receive what is called a Property Inspection Waiver (PIW) on a conventional loan. If the borrower receives a PIW, an appraisal would not be required. This ability to waive the appraisal is based upon the down payment, occupancy type, sales price, and market data. The automated underwriting system engine considers these factors and determines if a PIW is an option. This is not a lender-to-lender decision. If anything were to change in the scenario that the loan officer used to run the software, the PIW may no longer be available.
If you were to waive the appraisal contingency and an appraisal ended up being required, and the home did not appraise for the sales price, the loan amount would need to be lowered. For example, if the original sales price was $210,000 and the borrower was putting down 3%, the loan amount would be $203,700. If the home only appraised for $200,000, the lender would calculate the 3% off of the $200,000 (appraised value), and the new loan amount would be $194,000. This would result in the buyer needing to cover the difference between the sales price and the appraised value, in addition to their 3% down payment ($6,000 down payment + $10,000 difference between sales price and appraised value). In this scenario, closing costs are not considered, but those would be in addition to these rough figures. Additionally, the lender would need to verify that you had the funds available for the down payment, closing costs, and difference between the sales price and appraised value.
3. If you can, avoid asking for closing cost help from the seller.
- Jennie, REALTOR®: If you are in a multiple-offer situation, and you ask for the seller to pay part or all of your closing costs, your offer most likely will not be accepted. This is because you are cutting into the profit the seller would ultimately receive. If you submit an offer with a higher sales price, but are asking for closing cost help, the seller will potentially run the risk that the home will not appraise. If you cannot cover the closing costs yourself, the transaction may fall apart.
- Kait, Mortgage Lender: Different loan programs have different allowed seller contributions. Before asking for seller help, check with your lender to see how much your estimated closing costs would be and ensure you are asking for the allowable amount to cover those costs. In the event you do not have enough verified funds to pay the closing costs, it may be beneficial to take a slightly higher interest rate in order to receive a lender credit to put towards the closing costs.
4. Consider a larger earnest money deposit.
- Jennie, REALTOR®: This lets the seller know you are serious about the home. The typical earnest money deposit is about 1% of the sales price. By using a larger deposit, it gives the seller peace of mind that if anything were to go wrong and you did not fulfill your contract obligations, they would be compensated for the time that they took the home off the market to pursue a contract with you.
- Kait, Mortgage Lender: As long as you fulfill your contract obligations and the lender can verify where those funds came from (i.e. showing bank statement(s), a copy of the earnest money deposit check or wire, and the funds being withdrawn from your account), your earnest money deposit will go towards your down payment and closing costs.
5. Consider writing the offer “as is” with inspections and right to terminate.
- Jennie, REALTOR®: If you decide to keep your home inspection contingency, I recommend writing it for a shorter time period than 10 or 14 days. That used to be standard contract time period, but home inspections can be completed more quickly than that which would help to give the seller peace of mind. This also helps to protect the buyer from purchasing a home with issues they were unaware of. If a home inspection surfaces any unknown issues that the buyer is uncomfortable with, standard procedure is to notify the listing agent with a copy of the home inspection. Technically, since the offer is “as is”, they are not required to fix anything. At that point, the buyer could walk away without forfeiting their earnest money deposit. If the seller does not fix the issue, they will need to disclose that issue to the next buyer if they were to relist the property. As a result, in many situations, the seller either fixes the issue or gives a closing cost credit to offset how much the repair would cost to keep the contract moving forward.
- Kait, Mortgage Lender: Most loan programs do not require inspections, so this most likely would not make a difference to the lender. However, if the appraiser noted repairs needed for the property to meet required lending standards, this could become a problem. If the seller is unwilling to make those repairs, the buyers would most likely have to walk away from the contract.
Inventory is at an all-time low. Getting your offer accepted has never been more competitive. Having a local and experienced team working with you is imperative when trying to buy the home of your dreams. Please reach out to us if there is any way we can help you!
Sr. Mortgage Banker
O: (410) 794-4127
|Jennie Kussart, MRP
D: (443) 986-8874