In today’s market, bidding wars have become the norm. Understanding this process and how to make a strong, confident offer can be overwhelming for homebuyers who aren’t quite sure how to navigate this hot market. A little bit of education paired with some strategy on your part can help your clients make a competitive offer that may just be a winning offer.
Understand Sales Price vs. Appraised Value
The appraisal can be a key part of the loan process and an important piece for buyers to understand in this market. Helping your clients understand the difference between sales price and appraised value before they enter into a bidding war is crucial, especially if there is financing involved.
One of the major components driving sales price at the moment is buyer demand, but sales price and appraised value don’t always match, and what happens then? Helping buyers navigate their options when they get into a bidding war is important, but helping buyers understand what happens if the home they are under contract in doesn’t appraise for the sales price is probably even more important.
Most buyers don’t understand that if the home doesn’t appraise for the sales price that they’ve agreed to, they may need to bring extra cash to the closing table to cover the difference. While this scenario may not be the norm in every market, there are some markets where homes are selling for $300,000+ over asking, and there is just not enough data to support an appraised value that equals the sales price.
Buyers should also understand that paying a significant amount over the sales price may not be a great tactic if they’re not planning on being in the home for long—it’s important that they have time for the value of the home to catch up to what they paid on paper. Here’s where you can step in and advise your client on what might be best for their unique situation given the current market.
Look for Homes Under Budget
These days, a home’s asking price is a floor and not a ceiling, and buyers are likely to have to bid above asking price. A good strategy for some buyers may be searching for homes below the dollar amount that they’ve been approved for so they have room to bid up without going outside of what they can truly afford.
They may also need to be willing to go for the maximum amount they can qualify for based on their pre-approval. In this market, there’s no holding back—buyers must put their best foot forward from the get-go.
Understand How Contingencies Can Make or Break an Offer
Contingencies can make or break an offer these days, and you’re in a unique position to help your buyers understand how that works. If a client is buying and selling at the same time, they may want to write a home sale contingency into their offer. This is where you can save the day with financing options to help them get from one home to another while also writing a strong offer without a home sale contingency.
Inspection and appraisal contingencies may also be a make or break for buyers, but it’s important that your buyers understand what happens if they waive these contingencies.
With APM, you can also remove that pesky financing contingency (more on that below)!
Go Beyond Pre-Approval to Full Underwriting
A pre-approval is a must these days, but you know what’s even better? A full underwriting approval before a buyer locates a property and makes an offer. At that point, it’s only the appraisal, title, and contract contingencies to go before closing.
Through the APM Keys on Time™ program,* we provide a commitment to close loans on time, and if we don’t through some fault of our own, we’ll credit the borrower or the seller up to $2,000. This program sets buyers apart with a guarantee to the seller that they’ll close on time.
You can take it one step further with our TBD Loan Approval + Keys on Time.™ Our TBD Loan Approval can strengthen your borrower’s offer by providing a fully underwritten loan approval, making it as good as an all-cash offer. Not every lender offers this, and in this market, it can’t be beat.
Plan for a Down Payment
If a home doesn’t appraise for what it’s selling for, it can put a buyer in a tricky situation and even take them back to square one, not to mention cost them money. Arming your borrowers with this information ahead of time will save all parties a lot of heartache and frustration. It also gives you the opportunity to do some down payment planning and talk to your buyers about ways they may be able to access extra cash if they were to get into this situation.
Borrowing funds from other assets may be an option if there is time to plan ahead. Helping borrowers plan for using more cash, if needed, can put them in the position they need to be able to make a strong offer and compete in a bidding war. Again, your expertise is invaluable.
Getting Creative with How You Structure a Loan
Getting creative with how you structure a loan can help buyers understand their true buying power and be the differentiator in them getting an accepted offer. This may mean putting together several financing scenarios for borrowers to understand BEFORE they make an offer. Showing your buyers how to leverage their down payment or providing a high-low sales price range so that they understand how they can compete are great tactics in this market. Structuring several financing choices, such as alternative mortgage insurance solutions, will make all the difference for helping your buyers meet their goals.
This is where you can show off your knowledge of the local market. Someone who’s not in your area may not know how to structure loans to your borrowers’ best advantage, and that’s why borrowers should choose you.
Allow Plenty of Time
Letting prospective buyers and any real estate leads know that they should reach out to you as soon as they’re thinking of buying a home is also a great strategy, and explain why this is the case. It’s not only so they can get pre-approved, but also so they have extra time to review financing options, get their down payment in order, and address any issues that may need to get sorted out on the mortgage side.
Give your borrowers a little pep talk before they start shopping for a home. Let them know that it’s not uncommon to have to make multiple offers in this market and instill in them confidence that by planning ahead, they are setting themselves up for success in the long run.
As a trusted lender, you're in a position to make a big difference in your buyers' home-shopping journeys. It takes know-how and expertise, but in the end, this is one of the best ways to stand out from your competition.
*Keys on Time not available in Oregon. Terms and conditions apply, visit apmortgage.com/kot for details.