Help Buyer Get Accepted and not Frustrated

Real Estate Broker/Owner with Nikki Aguirre - Broker 01731793

The bottom came and went here in Murrieta, Temecula, Winchester and the surrounding cities. The local Real estate market to sharp turn this spring as Bank Owned inventory dried up.  Well, not exactly dried up, being held back. Many anticipate the market to be flooded with a new wave of foreclosures. While rumors abound of the next coming wave to be greater than what we are currently experiencing, we are still waiting for it to come. We have been anticipating this since March, and could have benefited from a little splash during this Hot summer!!

For now, we have to keep cool and take a very different approach to buying a home. I will break down each buyer distinction, the challenges we face  and share what would be the most tactical strategy to take.

Let's start with our most regarded:

The things that make a Cash Buyer so attractive is the ability to close quickly, low risk to the sellers in failing to close( to get a loan really) and their decisiveness. In a normal market Cash is King as my professor use to tell us. Not in today's market. We are seeing cash buyers being beat out by Cash Buyers who are paying a premium or Conventional buyers who are willing to step up the price even more. You see, the competitive market we are in combined with bank taking huge losses has created a unique situation.  In order for banks to mitigate their losses, they have to go with the HIGHEST bid with the LOWEST risk of not closing. This has allowed the conventional buyer who is willing to pay a 10% premium to beat out cash offers at asking.

 - Tactical Advantages:
As a cash buyer, you will have to use options that are available to you that are not available to financed buyers.
1. Appraisals are part of getting a loan - So make your offer without an appraisal contingency. Have your Realtor do a broker's price opinion for you as part of your service.

2. Increase your deposit to 10% of the purchase price. Most financed buyers will traditionally go 1-3%. The higher the deposit, the more serious the seller thinks you are, and the less likelihood of pulling out of the deal

3. Time: A loan takes time regardless of how much down-payment is brought in. Shorten your timeframes to 10-15 days from acceptance. This gives you enough time to do your discovery. Your Realtor should be in close communication with you upon acceptance to schedule all necessary inspections and review reports and disclosures.

Last but not least:
4. Your offering price should be at the BPO value. Why? Most cash buyers want a discount for going all Cash right? Well, the Conventional buyer will offer the maximum the appraisal will support and sometimes a premium or no closing costs. You have to make the bank think twice.. Should I go with this financed offer at 10,000 over asking , or this ALL CASH at Asking?

Strategy: When you put all 4 together, you will increase your chances of getting accepted.

Onto our Conventional Buyer:
The conventional buyer is a mixture of a cash and financing. With high enough Fico scores and at least 20% down, these are sometimes regarded as good as CASH.

- Tactical Advantages:
1. Financing. Since a large part of the purchase is financed, a Conventional buyer can easily increase the purchase price to go above asking. How? Easy, they switch over from Conventional financing to an FHA loan with a high down payment. This allows you flexibility in your offer.

2. On FHA and VA buyer, you have the advantage of time also much like the cash buyer. Although you still have to get a loan, our experience has been that a solid Conventional buyer has no problems closing within 30 days. While FHA and VA sometimes go 45-60 Days.

3. Closing Costs. While most buyers, are still asking 3-4% in closing cost concessions. Make sure to use some of the Cash to pay for your own closing costs. Do not stack closing costs on top of your offer it weakens it. This all has to do because your offer may be contingent on the appraisal. If the appraisal comes in low, and you asked for closing costs, the seller believes that you are going to ask for a price reduction and still expect the closing cost concession.

4.  Earnest money deposit.  You are coming in with at least 20% on your offer, so make your offer with at least 5% earnest money deposit.

Strategy: Make offer 5-10% above the BPO Value ( what the house is actually worth), 5% Earnest money deposit, and carefully consider your closing costs. Make it a sliding scale. In other words, do not ask for a fixed amount - Ask for a percentage of the purchase price. IF the price is negotiated down, then the cost will be automatically be reduced - no need to renegotiate.

FHA Buyers:
An FHA buyer is one who is seeking FHA financing that only requires a minimum of 3.5% down payment. Because FHA is less restrictive on their lending guidelines, the sellers sees this buyer as being more risky. Not to mention, that since the FHA will be insuring against default by the borrower, they need to make sure the home is in liveable conditions. if they are not, they will require the seller to make repairs before approving the loan. So to start, you are already behind the other two types of buyers just mentioned.

- Tactical Advantages:
1. You really only a couple advantages over the Conventional buyer. The appraisal!! You see, a lot of escrows have fallen out due to the appraisal guidelines HVCC that passed on May 1st. The loan officer can no longer choose a local, experienced, and knowledgeable appraiser. They are chosen at random, and sometimes have no clue as to what the local market is doing. As a result they bring in a LOW Value, and kill the deal. NOT YOU THOUGH - You can still have your loan officer choose the appraiser, and thereby give the seller a better assurance that what you are offering is what they are most likely to get.

2. Trade Time for a Better deal. Most Cash and Conventional buyers want quick decisions and quick escrow....Well, we all do. But if you are willing to trade time for money, you can a propery below fair market value!! That is correct!! Under market. You pursue short sales instead of bank owned. They take longer, but are sweeter deal when they get approved.

Strategy:  Do not get into a bidding war with Cash and Conventional buyers unless you are prepared to pay your own closing costs. Pursue better deals by going after Short Sales. If you want to reduce the time you have to wait, then ask your Realtor to check on seasoned SHort Sales. If they do not know what those are, have them contact me. I will guide them in the right direction. Also, remind the listing agents that your offer is NOT subject to the HVCC, so their seller will max out with your offer.

VA Buyers:
Having family members who have served, these buyers deserve to use their benefit for serving our country. I blogged on the discrimination we are seeing in our industry. A true disservice to our military personnel.

- Tactical Advantages:

1. Flips: Because of the FHA anti-flip policy, Properties purchased by investors, fixed, and being resold on the market cannot be sold for 90 days to a buyer obtaining FHA financing. VA buyers are not subject to this limitation

2. 100% Financing and Closing costs. Since you are financing the entire loan, you can used the money you have saved to pay closing costs.

3. Same as the FHA buyer. You have the advantage of time. Trade time for a better deal. Remember the sayings "Hurry up and wait" - this is the same. You can get more house for the same money if you are willing to wait for an approval.

Strategy: Look for flips to buy rather than bank owned, they are just as quick and usually in better condition. Offer above asking like the FHA and Conventional buyers, but most importantly use the money you have to pay for your own closing costs, and plan to get into a house 4 months down the road. You can get a nice home for less money if you are willing to wait. Ask your Realtor to remind the listing agent of your dedicated service to our country. If they do not know how to tell them - just ask them to forward our BLOG.

While the market has turned and become highly competitive, there are still opportunities to capitalize on good deal if you have the right approach. We hope our blog help you get into a home faster and easier. Good luck and God Bless!

Comments (2)

Jean Hanley
Coldwell Banker Kivett Teeters - Hemet, CA
Specializing in Folks Who Want To Buy/Sell Homes

Hey you guys, this is great information for everyone.  I too am getting a bit anxious for all the "promised" and/or "anticipated" REO business to burst thru the dam.  Seems everyone is talking about it.  Sure will be nice when it does happen, won't it.

Sep 05, 2009 04:19 PM
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

I can relate. All my over priced short sale listings got a lot of attention this summer in your area. The best strategy is to buy a short sale by controlling the seller. Have your buyers promise to purchase the stove for a couple of grand. This way, your low purchase offer will be the only one the bank sees. Also, if you are dealing with cash strapped FHA buyers, you will need to work with a FHA broker who can close in 21 days and make offers on short sales with one lender and low deliquent HOA dues.

Sep 05, 2009 04:48 PM