Trying to compete in the market over the past two years has been a tough road for buyers getting a mortgage loan. Some buyers would have preferred to take out a mortgage and conserve their cash, but given market conditions, they felt pressured to make an all-cash offer to have a strong chance of winning.
Not every buyer has that luxury, and no matter how financially strong they might be otherwise, the word “mortgage” hasn’t been a favorable one for listing agents and sellers in our market as of late.
Although the number of multiple offers might be waning in certain markets, buyers who are obtaining financing are still having difficulty getting an “at bat” depending on local market conditions and the kind of property they are trying to buy.
It’s still not easy out there for those looking to make a purchase. Here are nine tips to help buyers compete in an all-cash world.
1. Full underwritten approval
The old “pre-approval” letter as we know it is extinct. You know, the pre-approval letter subject to underwriting review, etc., is now perceived like the old “pre-qualification” letter.
If you have been in the business for a while, you might recall when offers actually came with the pre-qualification letter, and buyers would typically supply the approval letter once the buyer made the application for financing after going under contract.
Today, the game has been upped significantly. Any buyer getting financing that’s not fully underwritten approved before shopping and submitting an offer on a home is half in the game.
The time to submit all of your buyers’ documentation to the lender is before they find a home that they have a massive sense of urgency to put an offer in on. There will be 20 other buyers with the same thought (and this all will tend to come down to 6 p.m. on a Saturday).
Once the buyers have been fully approved, the perception of their financial strength significantly increases, as this lets all parties involved know they are good to go. This also makes the loan process go so much faster — the time waiting on compiling and sending documents nearly vanishes, and you can order the appraisal immediately.
Sure, there are still some hitches to go through, and loan approval is predicated on no adverse changes to the buyer’s financial situation, but it is certainly better than having to submit documents after going under contract and waiting on an underwriter to review the buyer’s file.
2. Proof of funds
In some markets, this is the norm and not the exception. In other markets, the listing agent typically does not request proof of funds unless it’s a cash buyer. Where I practice real estate in Southern California, an agent wouldn’t dare forget to include proof of funds with an offer. It just wouldn’t be taken seriously.
In the other market where I practice in Northeast Florida, it is very rare to see any offer submitted with proof of funds voluntarily unless the offer is cash.
Whether or not it is a custom practice to include this information in your specific market, help the buyer’s offer stand out by including proof of funds to show their seriousness (with account numbers and other personal information redacted, of course).
Also, be mindful of how you present proof of funds. Screenshots are not the most credible sources of information and may not be legible. A copy of an account statement where the listing agent and seller can clearly see the institution holding the funds and the amount in the account is preferred. Or a letter by a banker or financial adviser on official letterhead with contact information to include a telephone number and email.
Although this may seem “old school,” listing agents need to be able to lay out a paper trail that matches up to what the buyer is offering, putting down and financing.
3. Giving context
While buyer “love letters” have gone by the wayside, make sure that you communicate something with the listing agent that gives a little context about the buyers’ ability to get to the finish line. That is if the listing agent is OK with receiving this information.
Names and numbers on a piece of paper and a lender letter can’t convey the entire story. It can be a delicate balance to stay within the boundaries of what’s fair game today.
But assuring the listing agent that the buyers are solid may help their offer stand out over those whose agents simply emailed their offer and didn’t take the time to go over it and provide a bit of context.
To that end, having a lender who will personally pick up the phone and contact the listing agent is an absolute must in today’s market. The lender will be able to speak more in-depth and give the listing agent assurance about the buyers and their process so everyone can expect a seamless and fast-moving process.
The buyer’s selection of a lender is critically important because of this, and buyers should counsel them on the importance of that decision. If they are using someone their agent is not familiar with, the agent should call the lender before the home search process starts.
That way, the agent can brief that lender on the search and what the buyers are likely up against based on price point and inventory. If the lender is not local, this conversation is even more critical.
It’s also advisable to ensure the lender is reachable after hours and on weekends in case adjustments to approval letters need to be made or questions answered as multiple offer scenarios arise where buyers often need on-the-fly advice about variations to down payments or loan scenarios as well as evaluating whether to shorten or waive contingencies as it pertains to financing or appraisals.
If the lender is only reachable by a 1-800 number, advise the buyer that they may have a more difficult time in a competitive offer situation and will need a lending advocate by their side every step of the way, just like their agent who serves as their real estate advocate virtually 24/7.
4. Contingencies
When a buyer needs financing, it can be very difficult to decide if they should limit or eliminate contingencies when writing an offer. In real estate, Murphy’s Law is alive and well, and if it can go wrong, it will.
The very contingency that was waived or the timeframe that was severely reduced can come back to bite the buyers and their agent when some unforeseen issue crops up (and it often does, no matter how prepared the buyer and their agents are).
The pressure is on, and with low inventory, multiple offers as well as backup offers, the seller may not be inclined to extend and may want to just move on to other buyers unless the issue pertains to the home itself and is a major repair that has to be dealt with in some way.
If a buyer has the ability to shorten the timeframe for loan approval, that could be viewed favorably by a seller. Waiving a financing contingency can be a risky business, but in some cases, it may be the only way to compete. That, of course, depends on the situation.
Appraisal contingencies are often the biggest hang-up for a seller with respect to financing as it is uncertain for both the seller and the listing agent in tying the home up, off the market, while waiting for the appraiser to come out.
It can often be a crapshoot as to when the appraiser goes out to the house to the turnaround time for the report to be completed and released to the buyer.
With asking prices pushing higher with each sale, along with offers, buyers are oftentimes pushing the limits of their purchasing power and may not simply have the money to cover an appraisal shortfall. They may need to conserve the cash they have for moving costs and expenses associated with a new home for repairs, improvements, etc.
If the buyers are able, they should consider waiving the appraisal contingency if they are in an uber-competitive market or can try negotiating to guarantee they will pay a certain dollar amount over appraised value should the property not appraise at the agreed-upon sales price.
This is a tough contingency to work through as the stakes are high, and if the buyers don’t have the funds to cover any shortfalls, they really aren’t in a position to do much to where it would make a difference for a seller.
A lot of this really depends on the market, property and kinds of financing it is likely to attract. If the property is likely to bring more buyers needing financing versus cash buyers, leaving an appraisal contingency in may be more the norm, not the exception.
5. Escalatory addendums
When it comes to how much to offer, many agents have been using escalatory addendums over the last couple of years. They are more prevalent in some markets versus others.
On the surface, they appear to up the ante, with the buyer offering to top the highest offer by a certain dollar amount at a price not to exceed a certain amount. However, the reality is: Unless the buyers are willing to guarantee that they will pay the price resulting from the escalatory addendum, these addendums don’t mean much — particularly in a very competitive, multiple-offer situation.
If the buyer is getting financing, these addendums are viewed as vehicles to artificially take the home off the market unless the buyer will commit to the price no matter what happens with respect to the appraisal.
Buyers may be better off offering a strong asking price that they can realistically afford and their agent presenting their offer from this standpoint with the assurance they will get to the finish line versus a pie-in-the-sky offer that may be used to tie up the home — only for it to come back on the market several weeks later should the property not appraise.
6. Post-closing occupancy by seller
One of the biggest contractual terms that remains highly attractive to sellers is the ability to close in a normal timeframe, ranging from a couple of weeks to 30-45 days. It’s appealing to be able to stay in the property for a negotiated period of time.
Every transaction that I worked on in 2021 that was not a vacant property resulted in the seller staying anywhere from a few weeks to up to several months past closing, with a post-occupancy agreement put in place.
If the buyers have any flexibility, they may need to consider allowing this on some level, especially if it’s important to the seller. It can be more complicated when the buyer has a mortgage as lenders don’t want to see a seller occupancy of more than 60 days, which can trigger the property being treated as investment property instead of a primary residence.
7. Cash-backed offer programs
To respond to the challenges facing buyers getting mortgages in the current climate, companies like Homeward and Knock, among others, have been on the cutting edge of reinventing the loan process so that buyers can make cash-backed offers while obtaining their financing through one of these companies.
This levels the playing field for buyers getting a loan and includes appraisal protection. While these programs may not be offered in every single real estate market, they are available in a significant number of them. Agents need to make sure they are up to date with all of the offerings so they can educate their buyers on this option.
It’s wise to loop the buyer into this process early on, which could potentially save them from losing out on multiple properties, enduring unnecessary stress, and saving time for both buyer and agent. These companies can also assist a buyer in making a noncontingent offer on a home if they have to sell one to buy.
8. Well-written offer
Buyers are up against a tremendous amount of challenges today — from low inventory to climbing prices as well as interest rates. Agents need to do all they can to ensure their buyers’ offers will be given every consideration, which means preparing a very detailed, thorough and accurate offer.
Take time to read agent private remarks and any instructions that may be posted in MLS — this definitely seems to be a lost practice. Call the agent before writing an offer to find out what’s important to the seller. Ask if there are any special nuances or circumstances that you need to be aware of.
Make it easy for the listing agent to read through your offer and all supporting attachments. Be sure to summarize and bullet-point the highlights in your email. When sending an offer, you shouldn’t have multiple attachments or send several emails with those attachments. Rather, combine the offer package into no more than one or two attachments.
Ensure the offer and related addenda as well as lender approval letters and proof of funds are included. Always text the listing agent to advise when you are sending the offer over and CC yourself.
Even if the buyer does not have the winning offer, the listing agent will take notice of the standout effort and how all was prepared. It may just score you some brownie points the next time your paths cross, or perhaps the buyer with the accepted offer will fall out of contract and the listing agent will think of you and your buyers first.
9. Relationships
Due to the pandemic, real estate became more virtual versus face-to-face. Broker opens, in-person meetings, real estate networking events, as well as open houses, did not take place or were significantly reduced.
While none of that stopped more licensees from entering the business, there has been less relationship-building now versus pre-pandemic times. In addition, as a result of a record number of elective relocations (real estate agents included), there may be a lot of names unrecognizable to seasoned agents in any given market.
That being said, relationships are still critically important to getting a transaction done.
It can certainly be more challenging as a result of the various challenges the pandemic has created to establish those relationships. Reach out to the listing agent to build rapport, and at least put a voice to a name. This is an opportunity to convey your professionalism and sense of urgency in a respectful way.
If you are new to the industry or another market, have your manager or a mentor assist with presenting the offer to help enforce your credibility and commitment to seeing it through. If they are familiar with the listing agent, perhaps a phone call vouching for you can also go a long way to helping your offer stand out from others who simply just emailed it in, hoping for the best.
In today’s fast-paced market, there isn’t a one-size-fits-all approach to helping a buyer compete in an all-cash world. However, there are various tactics and strategies that can certainly help. Adapt the suggestions above to your buyer’s situation and specific market dynamics at hand, and with persistence, you’ll have a strong chance of buyer success.
Cara Ameer is a broker associate and global luxury agent with Coldwell Banker Vanguard Realty in Ponte Vedra Beach, Florida. You can follow her on Facebook or Twitter.
