Get Your Offer Accepted

 In Qualifying for a Mortgage, Uncategorized

As anyone who is looking to buy a house in the Denver metro area knows, there are few houses for sale, and the houses that are for sale often sell for more than the listing price.  Here are two suggestions about how you can make your offer more attractive to a seller and get your offer accepted.

Although we are not real estate agents, we have worked with many agents over the past 14 years, and have probably seen more accepted contracts than most agents have.  We also know a great deal about the financing involved in the offers that are accepted, as well as those that are not.

Price vs Percentage

It’s important to know how many sellers and their real estate agents decide which offer to accept.  Price, of course, is a major factor.  Assuming that everything else is equal (same type of financing, same closing date, same contract terms and contingencies), if there are multiple offers, the buyer who offers the highest price will almost always have their offer accepted.  How do you make your offer more attractive to the seller?  Offer to pay more money for their house.  It sounds ridiculously simple, but many buyers (and sometimes their agents) get caught up in the dollar amount they are offering over the listing price, rather than the percentage over listing price. 

As an example, if a house is listed for $100,000 (not that many are these days), very few people would bat an eye at offering $5,000 over the listing price for the house and still think they paid a fair price.  That’s 5% over the listing price.  If a house is listed for $500,000, 5% of that is $25,000, and that seems like a lot of money, even thought the percentage over the listing price is still just 5%, so many buyers are reluctant to offer that much.  And then they wonder why offer after offer is not accepted.  

Any competent real estate agent knows the percentage over the listing price that the average house sells for.  Ask them for that number, and listen to them if they tell you that’s how much you need to offer over the listing price to get your offer accepted.  Otherwise, other buyers will probably beat your offers time after time.

Cash vs Finance

The second thing you need to understand is that the type of financing plays a large part in which offers get accepted.  Cash offers are often the most attractive, although some people who have the cash to buy a house without a loan are full of themselves and think that their wealth allows them to make unreasonable demands when they make an offer.  Assuming there are no unreasonable demands in their offer, though, cash offers will typically get accepted over other offers for the same amount that require financing.  Most of us don’t have the cash to buy a house without needing a mortgage, so you need to know which types of financing are thought to be most attractive to sellers and their agents.

Conventional (non-government) loans with a large down payment are seen as being the most attractive.  Next comes conventional loans without large down payments, then FHA loans, followed by VA loans, and finally down payment assistance loans.  If everyone had a competent lender, none of that would make a difference because a good lender knows with almost 100% certainty whether a loan is going to close, regardless of which type of financing is involved.  Unfortunately, there are many incompetent lenders around, and real estate agents know that, so they don’t look at offers that involve financing with lower down payment amounts, lower credit scores, etc. as being as attractive as offers with conventional financing and a large down payment.

That makes sense to a certain degree, but assuming you don’t have a large down payment (20% or more), perfect credit, or if you only qualify for an FHA, VA, or down payment assistance loan, what can you do to make your offer more attractive?

The answer is surprisingly simple, but it involves a little effort and time.  Here’s what you should do to get your offer accepted if your financing is viewed as being less attractive than cash, or you don’t have a large down payment and qualify for a conventional loan.  

Underwriter vs Salesperson

Ask your lender to send your loan file to the underwriter before you make an offer.  Typically, a lender will collect your financial information, pull credit, and run the file through underwriting software that tells us how much you qualify for.  However, if your lender isn’t really on top of their game, they may overlook something that disqualifies you from getting the loan, and that will only be discovered when an underwriter looks at your loan file. 

It’s incredibly important to realize that your lender is a salesperson, and not an underwriter.  As we all know, salespeople are sometimes only interested in making a sale, and if your deal doesn’t close, they just move onto the next potential sale without a thought to how they have inconvenienced you.  Although we (or any other lender) can tell you we know everything there is to know about mortgages and whether your loan will actually close, in the end, you really just have to trust that we aren’t making it all up.  If your loan is sent to underwriting and approved before you make an offer, however, all of the uncertainty is removed.  

When your loan file is already approved by underwriting, it will often be even more attractive to a seller and their agent than a conventional loan with a large down payment.  Sending your file to underwriting is the great equalizer.  Here’s how you do it and how long it takes.

Pre-Approval vs Approval

We need to collect your financial information (pay stubs, bank statements, etc.) and have you sign a few papers, and then it takes about two weeks for us to do all the necessary verifications and have an underwriter approve the loan.  It’s very easy, doesn’t cost anything, and doesn’t take much time.  The biggest mistake you can make these days – and we see it happen all the time – is that you start shopping for a house right after you are pre-approved by a lender. 

Unless you are offering more money than anyone else, and have a larger down payment and conventional financing, nothing will separate your offer from all the other offers the seller receives.  Our advice is to take the two weeks necessary to get your financing fully approved, and then start making offers.  If you do it that way, we can write an approval letter (not just a pre-approval letter), and tell the real estate agent representing the seller that your offer is as good as cash.  

The decision about which way to go comes down to this.  Would you rather spend two weeks waiting for a full loan approval and get you offer accepted, or waste those two weeks making offers that don’t get accepted?  If you make offers right away, after two weeks of disappointment, you won’t be any closer to getting an offer accepted than you were originally.  You’ve wasted two weeks and are in the exact same situation, with nothing to make your offer more attractive to a seller.  

Assuming you do get your loan fully approved, remember that to get your offer accepted, you still have to offer enough money for the house, too.

To get started on a full loan approval, contact us today.  You will not regret it.  We have done this for many buyers, and we have never had anyone tell us they were sorry they spent a little time and effort upfront.

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