Credit union loan officers know that this summer’s housing market for purchase mortgages will be like no other: insatiable demand from buyers, low inventory in many neighborhoods, and low mortgage rates.
What guidance can you offer borrowers? The following advice will help you guide new buyers, especially those who feel desperate in a tight seller’s market:
- Increase their earnest money deposit. The usual $4,000-$6,000 may not cut it in this market. Buyers can stretch it as much as possible to emphasize how serious they are to sellers.
- Skip the home inspection. This usually is not recommended. But if enough is known about the property since the last inspection-escrow period, and if the seller seems very transparent, buyers can offer to waive the inspection (thereby waiving their right to negotiate with the seller if an inspection had uncovered any issues). This could be priceless for some sellers who are in a hurry.
- Offer appraisal-gap coverage. If the offer price is higher than the appraiser’s appraised value (which credit unions use to justify the buyer’s mortgage amount), buyers can specify how much they are willing to pay to cover this gap where their mortgage will not. Providing this can calm sellers’ nerves.
- Waive the appraisal contingency. This contingency usually gives buyers the right to walk away from a deal with their earnest money deposit intact if the appraisal comes back much lower than the list price. Removing this can give sellers peace of mind.
- Waive the home, hazard, or sewer/well inspection. This is not recommended. Yet in today’s tight market some highly competitive buyers are taking at least one of these steps. It’s another way buyers can show sellers they are bound and determined to win the house.
- Offer to pay a portion of the seller’s closing costs and/or taxes. This is often used in the “normal” market of many year’s past. So in today’s version, maybe buyers pay a VERY LARGE portion of those costs just to sweeten the deal even that much more for sellers.
- Accommodate the seller’s timeline — or offer the shortest escrow possible. Instead of the typical 30 to 45-day escrow, can you and your buyers wrap things up much sooner? Maybe 25 – 29 days? Sometimes this is all sellers need to pick one buyer over another.
- ”Put down” the largest down payment possible. Sometimes a higher down payment (5 or 10 percent down instead of 3.5 percent) signals to sellers that there aren’t any unseen hiccups in the mortgage financing process. Ironically, even though this shouldn’t matter, perception can be reality for sellers in this tight market.
- Make the highest offer. There are two ideas here: overbidding (making an above-list-price offer on a home) and outbidding (competing against another buyer’s bid). Both are powerful statements to sellers.
- Include “escalator clauses” in their offer. This clause can state that the buyer’s offer will automatically increase by $100, $500, $1,000 or whichever amount needed above any other incoming competing offer at the time. This could be the one factor making sellers lean into one buyer’s direction over another.
- Be immediately accessible for questions and discussion. Buyers should be ready at the drop of a hat to quickly respond to any inquiries from a seller’s agent. Sellers will take notice of the flexibility and communicative posture.