Why Take a Mortgage Contingency Over Cash Offer?
There is lots of cash in the market right now and many cash buyers looking to buy much of the inventory of condos in Boston.
This week a client of mine had five offers on her condo, two of them were cash. But she chose to take an offer with a mortgage contingency instead.
Why would she subject herself to the risk of a buyer's financing falling through?
1. Savvy buyers with a mortgage contingency will often offer much more money, to make up for the risk of an offer with a financing contingency.
I've advised buyers to do this, and it works often. Cash buyers often believe they can offer less money because their offer is cleaner. With so many cash buyers and the mortgage market loosening up, competition is stiff, even for the no-mortgage buyer.
2. Well qualified buyers are securing financing fairly easily. The perceived risk of a mortgage contingency is lower than just a few months ago.
A pre-approval letter is giving home sellers assurance there is a very high likelihood this buyer will come with the money to the closing.
Furthermore, the big risk associated with mortgages in a rising market is an appraisal falling short of the buying price. If the buyer waives the appraisal contingency, the resistance to a mortgage contingency is lower still.
3. Because it is so easy to sell the property, a home seller who is not in a hurry will take a chance on a buyer they like better, even if they pose some risk.
If after one open house the seller has five offers, the seller feels secure in the listing agent's ability to bring a new buyer to the table, should the first one's financing fall through.
4. Unlike other investments and commodities, real estate has an emotional aspect. There are many investors competing for Boston condos, but not every home seller wants to sell to an investor. Many sellers care who will lives in their home.
Some sellers perceive cash buyers as pushy, afraid they will make unreasonable demands once an offer is signed. Cash buyers feel they have an upper hand and hold all the cards.
Card holders these days are the Boston condominium owners.