PURCHASE STRATEGIES: Delayed Financing and other strategies to help get your offer accepted

Strategies to Help You Get Your Offer Accepted

I hear all the time how homebuyers have submitted offers on many homes and they are frustrated because they lose for a variety of reasons, often to cash offers.  If you are waiting for your train to arrive in the form of an accepted offer, you may want to consider the strategies below before the train leaves the station and the price of a ticket goes up too much more.    Admittedly, the delayed financing strategy is only going to be viable for a small percentage of the home-buying population, but I thought I would make people aware of it – I’ll also include a few other strategies that could work to help your offer get accepted.

Delayed Financing

Cash is king and when it comes to purchasing a home, this axiom absolutely holds true.  A cash buyer can close more quickly (usually) than a buyer who needs to get a mortgage.  There is also a greater likelihood that the deal will close with a cash buyer (assuming the seller has verified that the buyer has the funds to close) than with one who needs to get a mortgage.  The speed and certainty of a cash buyer is a big advantage that will likely get their offer accepted over any offer that needs financing, assuming the offer price is reasonable relative to the asking price.

Most people want to finance the purchase of their home even if they have the cash to buy it outright – cash in a home is illiquid and the return on that investment is only the appreciation you get on the house – money tied up in a home is dead equity.  A buyer who can pay cash but chooses to finance the purchase gets the benefit of leverage which means that his or her return on the investment in the property is a multiple of the appreciation rate AND the buyer has all of the cash they didn’t put into the house to invest in other things such as funding their Roth IRA, investing in stocks / mutual funds in a non-retirement account, or buying investment properties.

If you have the ability to pay cash for a home, you can take advantage of the benefits (see above) this will provide in terms of getting your offer accepted and after you close, you can take a mortgage out within 6 months of the closing date and have the mortgage treated the same as a purchase-money mortgage.  You won’t have to worry about paying a higher interest rate because this mortgage isn’t considered a “cash-out” loan.  Additionally, you can use the money for whatever you want, including consolidating non-tax-deductible debt and you will likely still have the mortgage interest tax write-off (the tax code is changing as I write this so consult a CPA) since this mortgage is considered a purchase mortgage and not a cash-out refinance.  However, if you don’t close on the mortgage within the 6 month time frame after you closed on your house, then you will not get these benefits.  It will still be good to have the cash for investing / debt consolidation purposes, but the other things are important as well.

Timing

Many people, especially families with children in school like to shop for and buy their home in the late spring through the summer when the kids are out of school and there is less disruption as far as school is concerned.  That is always the busiest time of year and a buyer is more likely to be competing with other buyers for the same home and encounter multiple offer situations.  Additionally, sellers will probably be less willing to negotiate since buyers are more plentiful at that time of year.

Buying a home in the late fall through the early spring will mean fewer buyers to compete with and sellers may be more willing to negotiate.  The holiday season may even ramp up this advantage for the buyer even though this may not be ideal relative to having family over and other normal celebratory activities.

Keep the Big Picture In Mind

Everyone likes to get a deal, or at least feel like we got one.  That said, deals are relative AND in housing where no two houses are exactly the same, determining a fair price is much harder than buying milk or some other commodity at a grocery store or a pair of pants at a clothing store.  Determining the price of a home isn’t an exact science and sellers have their reasons for asking a certain price while buyers have their reasons for offering a certain price.  It’s best to keep emotion out of the equations as much as possible.

Buyers who submit offers below the asking price are at an obvious disadvantage to those who submit full-price offers, all else being equal.  The same is true for buyers who ask the seller to pay closing costs when competing buyers may be willing to pay their own.  I’ve worked with many clients who have submitted many offers over the period of several months and they were always trying to get a deal (basically they refused to offer full price).  In the end, they paid more for the house they got because of the appreciation over the time that it took them to get an offer accepted.

Consider a home with a purchase price of $250,000 in a hot market – I’m licensed in Nevada, Utah, and Tennessee and all of these places are projected to be top-10 markets for 2018.  If the appreciation rate is 6% (not super hot, but strong) then that home will appreciate $15,000 in a year and $7,500 in six months.  Some of my clients have taken 6-12 months, and on rare occasions even longer, to come to terms on a home because they wanted a deal.  If a buyer takes six months to buy a house in this scenario, they just cost themselves $7,500 (more if the home they were looking to buy had a higher starting price).  Had the buyer submitted a full-price offer six months prior, he would have paid $250,000 but now he has lost out on six months of living in his home and instead of the buyer getting the appreciation, he is paying for it in the higher price.

Paying full asking price for a home isn’t always the right thing to do and sometimes it’s best to walk away from a deal and look elsewhere.  However, sometimes it is appropriate to pay over full asking price – some sellers purposely ask for a low price to generate a bidding war and other times they are not properly advised by their agent.  A buyer will have the best chance of being successful when they have a great agent representing them.  I know a few so feel free to reach out to me if you need a referral – my contact info.