All-cash offers and contingencies: what you need to know
As Elvis Presley infamously sang, “Home is where the heart is.” The line often resonates deeply for both home buyers and sellers who are on the cusp of taking the next step in their homeowner journey. But, did you know even after an offer has been made and accepted, a contingency can extinguish the entire deal at the last minute? That’s certainly heartbreaking for all parties involved. In real estate, a contingency, also known as a “walk away” clause, refers to the conditions that must be met in order for the purchase or sale of a home to become legal and binding. For instance, in NAR’s monthly Realtors® Confidence Index report, “issues related to obtaining financing” continually leads the pack as the primary reason for the delay or termination of a real estate contract When buying a house with cash, however, there’s no financing contingency baked into the contract – eliminating the risk and heartache of the deal falling through. So, what common contingencies should you know about? In what ways can they protect you? In what ways can they increase the risk of a deal falling through? And how do cash offers impact real estate contingencies? Here’s what you need to know. Financing contingency A financing contingency states that the home sale is dependent on the buyer securing the expected mortgage. No financing approval, no contract. Closing a loan traditionally is a lengthy process, taking an average of 47 days to complete, according to Ellie Mae, the software company that processes 35% of U.S. mortgage applications. During this window, a deal can fall through due to financing at any time. Buyers and sellers alike can think the sale is a done deal, only to be notified of a financing problem on day 46 under contract. When instances like these occur, the financing contingency allows buyers to retract their offer without facing any penalties. No one wins when the buyer's financing falls through. For sellers, the challenge of the financing contingency is having to wait to find out if the deal will fall through, in which case, the seller will be forced to start from scratch and find a new buyer all over again; placing their home back on the market and fielding added expenses that arise from the failed sale. Often, the home also has to be listed at a lower price due to a stigma placed on homes that fall out of contract, regardless of the reason. Buyers aren't immune to wasted money and time either, facing their own frustrations of losing out on their dream home. And real estate agents can't get paid until their clients make it all the way through the sales process. Using an all-cash offer, however, there’s no financing contingency on the table. That's because a cash offer means the buyer has full proof of funds ready and loaded when they make the offer. Buyers who are Cash Approved™ -- not just "pre-qualified" or "pre-approved" -- pose no risk of falling out of a deal due to a financing contingency. Home sale contingency When a buyer’s offer is contingent on successfully selling their existing home first, that means the offer has a home sale contingency. Like the financing contingency, a home sale stipulation can stall the entire purchase process from moving forward. This type of contingency can be found in both financed and cash offers. In a hot market, home sale contingencies may not be as common since buyers don’t want to risk making their offer less attractive and have fewer concerns about being able to sell their current house. However, if you're a buyer who needs to include a home sale contingency, making a cash offer -- by getting Cash Approved™ for example -- is often a good way to go because cash gives you more negotiating power than a traditional financed offer. Appraisal contingency Another condition that can sour a deal is the appraisal contingency. After a seller accepts an offer, a traditional mortgage lender will require a property appraisal to ensure the asking price coincides with the market value of the home. From the condition of the property to renovations to tax records, if an appraiser’s assessment determines the market valuation is below the asking price, the lender can deny a buyer’s loan application after the offer is already made. If the mortgage lender agrees to move forward with financing in this particular scenario, the buyer would be accountable for paying the difference out-of-pocket. Most buyers don’t have the liquidity to front the difference, and the appraisal contingency allows them to terminate their offer without forfeiting their earnest money. Similar to the no-financing contingency, appraisal contingencies can be removed in an all-cash offer. But you don't need to be a billionaire with deep pockets to make a cash offer on a reasonable home. At Accept.inc, we want the mortgage process to work for everyday people -- what a radical concept! To speed up the closing process, we perform a value check on a home at the beginning of the home buying process – before an offer is made – rather than in the final hour like a traditional mortgage. That means no nasty surprises to torpedo the deal in the final hour. All-cash offers and contingencies In today’s supply-starved real estate market, homebuyers are seeking ways to make their offer stand out from the crowd. Bidding way above the asking price isn't the only way to do that -- fewer contingencies is another reason why sellers prefer a cash offer. Cash buyers represented 36% of home sales in 2020, according to CNBC. So, how can one go up against these Goliaths with easy access to millions of dollars in cash? The secret lies in aligning yourself with a lender who will let you negotiate with the power of cash, but with the ability to pay the money back over time like a normal mortgage. Interested in making a cash offer on your next house, with no financing contingencies and no additional costs, increasing your likelihood of making a winning offer by 4X? Learn how to get Cash Approved™ today!
Kelly K. | Jul 22, 2021
7 fees & closing costs associated with real estate cash offers
You’ve made an exciting decision: you’re ready to begin searching for the home you’ve always dreamed of – covered patio and all. Whether you’ve just started to explore different neighborhoods, or you’re in the initial stages of budgeting and planning, successfully navigating the homebuying process requires a solid understanding of the costs and expenses you’ll incur along the way. What to expect for closing costs, for example, is an important detail when figuring out how much you can afford to pay for a house. Closing costs are the fees and expenses you pay, outside of your down payment, to complete the sale of the house. According to data gathered by The Motley Fool, in 2020, the average closing costs for a house were $5,749. However, this number can vary greatly based on a home’s market value and geographic location. As a homebuyer, you can expect to pay 3%-6% of the home's purchase price on closing costs, but that number can be as low as sub-1% or as high as 4+%, depending on the state. What closing costs do you pay with cash offers? Increasingly, homebuyers in competitive markets are learning that "cash is king" -- that is to say, buying a house with a cash offer increases your chances of winning when there are multiple offers on a home. Sellers prefer an all-cash deal as it eliminates the uncertainty and slow process of transacting with a traditional mortgage lender. Seriously, high-fives all around! It’s a common assumption that in order to make an all-cash offer, you have to have hundreds of thousands of dollars already stashed away in your bank account, or a wealthy relative who does and is willing to front you the cash. However, there’s another option for buyers who aren't high rollers: making an all-cash offer facilitated by an iLender like Accept.inc. The same benefits of a cash offer without the need for upfront liquidity? That’s what we call a win. Do cash buyers pay closing costs? Yes, if you're making a cash offer on a house facilitated by a mortgage lender, you are still responsible for paying closing costs. In fact, all-cash offers are subject to many of the same closing costs any buyer pays when following the old-fashioned mortgage process. To delve deeper, here’s a look at the closing costs you'll pay with a cash offer on a house.Earnest money deposit (EMD) Earnest money, also known as a "good faith" deposit, refers to money paid to a seller, accompanied by your offer, to communicate to the sellers that you're serious about following through with the purchase. It's held in escrow until closing. How much you'll want to put down for your EMD depends on a couple of things. From market demand in the neighborhoods you are considering to the terms outlined in your purchase agreement, you can expect to pay a good faith deposit to be around 2%-5% of the purchase price. Your real estate agent will be a great resource to help you determine a specific earnest money amount that is appropriate for a competitive offer. The good news? This amount is not an additional fee but a deposit that is credited towards your down payment at closing. Title insurance & title search fees Title insurance is a one-time fee that serves as a form of protection against any unexpected title issues that may arise while you own the property. On average, title insurance costs about $1,000 per policy. In addition to procuring insurance, a majority of states require a title search to access public records and verify the seller is the home’s rightful legal owner. A title search, which can cost between $75 and $250 for a single-family home, will also reveal any undiscovered or undisclosed claims on the property, such as liens, wills, outstanding mortgages or deeds – all of which could affect the purchase process. Homebuyers who use Accept.inc's partner title company will not incur this additional expense -- we pay it for you. Escrow fees An escrow fee, or closing fee, is generally paid to the title company – an independent third party that handles title transfers, paperwork – like recording the deed – and the distribution of funds involved in the real estate transaction. Typically, the escrow fee is based on a percentage of the home’s purchase price (rather than a flat cost), but it’ll ultimately vary by company and locale. It can range, on average, anywhere from less than 1% to as high 2%. So, if you’re buying a $250,000 home, for instance, it could cost anywhere from $1,000 to $5,000. An escrow account, which operates similarly to a savings account, is used to collect and safeguard funds during closing, as well as throughout the lifespan of the loan. In addition to protecting your earnest money deposit, your lender may utilize an escrow account to fund your homeowner’s insurance and annual property taxes. Property taxes Property taxes may also be part of your closing costs, even when making a cash offer. Some states charge property taxes in advance – collecting either 6 months or an entire year’s worth of taxes upfront. Because property taxes are often prepaid by the seller, when ownership is transferred, the buyer will be responsible for reimbursing the seller for a prorated portion of the taxes. This number is calculated by dividing the total amount of property taxes paid by the seller by the number of days remaining in the year. Homeowners insurance Buyers are typically responsible for paying the entire annual premium for their homeowner’s insurance at closing. The cost of a homeowners policy varies greatly – using factors like coverage amounts, location, the value and size of your home and the deductible to calculate your premium. For instance, your new humble (or not so humble!) abode may be located in an area that requires your policy to include flood or earthquake coverage for added protection against these potential threats. HOA transfer If you’re purchasing a piece of property located in a community governed by a homeowners association (HOA), you may be responsible for covering a transfer fee. Separate from your yearly dues, the transfer fee exists to compensate the HOA board for recording and distributing the proper paperwork and documents. Private mortgage insurance (PMI) An Accept.inc all-cash offer is similar to a traditional mortgage when it comes to private mortgage insurance -- Since you are still receiving a mortgage at the end of the process, if your down payment is less than 20% of the home's purchase price, you'll still pay PMI. The cost, which ranges from 0.5% to 1% of the loan amount, is calculated annually and added to your monthly mortgage payments. Closing costs on cash offers typically include the buyer’s first month’s payment. How do you buy a house with cash without all the cash? All-cash offers provide a smoother, quicker real estate transaction – and they’re highly attractive for sellers, so cash offers are more likely to win a bidding war. But, let’s face it: most homebuyers don’t have access to the kind of liquidity or money required to fork over the price of the entire house up front. When you're competing with institutional buyers and those with deeper pockets, that feels unfair. That’s why Accept.inc is here to level the playing field. We believe anyone who qualifies for a mortgage deserves the speed, certainty and competitive advantage that comes with making a cash offer – but with the ability to pay back funds over time like a mortgage. We provide homebuyers just like you with competitive rates and no additional costs (or hidden fees). Ready to start making strong real estate offers that stand out from the pack? Get Cash Approved™ today!
Kelly K. | Jul 14, 2021
How to Buy a Home - Step Six: Make an Offer
If you didn’t catch our last blog post on how to house hunt in a hot market, you can get caught up here. In today’s blog, we take a look at the sixth step to purchasing a home: how to make an offer on a home. The day has finally come: you’ve found a house that feels right and are ready to claim your stake and submit an offer. But where do you begin? And how can you compete when there are so many other buyers? The pandemic has created an insatiable demand for home ownership. With both interest rates and housing inventory hitting rock-bottom lows, the average price for a single-family home is now valued higher than ever before. House prices have skyrocketed over 15% across the nation in just the past year, creating the perfect storm for a multiple offer frenzy. Buyers are pulling out all the stops in 2021, letting sellers know why they should be named the chosen one. From cash offers to season Broncos tickets, no consideration is too creative or crazy in this hypercompetitive market and the highest price isn’t always the best offer. How do you know if you are prepared to submit an offer? Here’s a quick list of what you should complete prior to submitting an offer: Reviewed comparable sales so you are familiar with the local housing marketYou or your real estate agent have asked the right investigative questions to the seller’s agent to uncover the seller’s true motivation for sellingYou have done research on the listing and the seller; you know if other offers have been made and why they didn’t cross the finish lineYou are prepared to show them the money; you have a Cash Approval or mortgage pre-approval letter dated within last 30 days to submit as part of your offer packageYou have researched inspectors and have a short list you can call to do a an inspection that same week in case your offer is accepted Step into the Seller’s Shoes In a seller’s market, a winning offer is one that can get ahead of a seller’s hopes and fears. Your offer should demonstrate you are a serious and motivated buyer, whose deal is unlikely to fall through and will close smoothly and quickly. In a balanced market, finding out the owner's reasons for selling can be a tricky game of cat and mouse. One of the upsides of a seller’s market is that sellers have so many options that they will often cut to the chase upfront and tell you or your agent their bottom line. What are the weakest parts of an offer? They are the same things that keep a seller up at night after they signed the contract. Let’s take a look at how you can strengthen your offer so it is more appealing to a seller. Focus on the 3 big rocks of an offer: Money, Conditions and Timing Big Rock #1: Money Earnest Money Deposit (EMD) An earnest money deposit, often referred to as EMD, is the amount you pay after the seller accepts your offer. This is a “good faith” gesture demonstrating you are committed to the deal. This is your cash you are willing to put “on the line” and stand to lose if you back out without a reason that was outlined in the offer. Make sure your agent explains to you how and when your EMD will become non-refundable as different contingencies in the offer are satisfied such as inspection, appraisal and financing. Price Feeling overwhelmed about what price to offer? In a seller’s market this fierce, the rules on price and negotiation are exponentially different than in a buyer’s market. With sellers often receiving as many as forty offers the first day a home is listed, your realtor might advise you to submit your highest and best price from the start. This will send a clear message that you are serious, rather than attempting to low-ball the price. Pro-Tip: If the seller is asking a price that equates with a mortgage you were approved for, but the monthly payment tied to that mortgage amount starts making your stomach queasy, it’s probably a sign you need to offer less or look at other homes that are priced lower. Knowing and sticking to the monthly housing payment you originally planned for can reduce a lot of unnecessary stress and simplify the offer process. Big Rock #2 Conditions of the sale- Contingencies Contingencies are clauses that establish minimum terms and conditions that must be met for the sale to go through. Contingencies can give you a way to back out of the deal, and get your earnest money back, so it should come as no surprise that sellers prefer buyers with fewer contingencies. Here are the top 3 contingencies that give buyers an exit strategy: Inspection- A home can look great on the outside but reveal expensive and time- consuming work once a trained inspector gets inside to examine it. The inspection contingency gives you the right to conduct a professional home inspection with a licensed inspector. The inspector will evaluate and provide you with a report on the condition and safety of the home at that point in time, plus feedback on any suggested repairs that need to be made. If that report reveals serious issues, you can reconsider your offer or terminate. Pro-Tip: Limiting the period of time to submit inspection objections can show the seller you are serious about your offer and not playing games. Appraisal-If you’re getting a mortgage, your lender will not loan you more money than the home is worth. An appraisal provides you and your lender with the fair market value of a home before the mortgage closes. Lenders will refuse to provide a loan that is greater than the appraisal value, and if you do not have the cash to cover a possible gap between the appraisal value and your offer amount (or feel comfortable paying for the gap), this is another opportunity for you to renegotiate or back out. Financing- Also known as a mortgage contingency, this condition is essential if you are getting a traditional mortgage which is not backed by a Cash Approval. In a multiple offer situation, sellers will typically rule out a potential buyer with anything less than solid financing approval in place. The financing contingency says that if your loan does not receive full underwritten approval by the end of the transaction, you can back out of the deal without losing your deposit. Pro-Tip: Get Cash Approved™ and remove the financing and appraisal contingencies from your offer. Big Rock #3 Timing Your offer will have a proposed closing timeline, which includes the inspection period. Once a seller accepts an offer, that day of acceptance becomes the effective date of the contract and that’s when the transaction’s clock starts ticking. Wes Stewart, Broker Owner of Mile High Luxury, says one of the most effective strategies to make an offer attractive is to prioritize the seller’s timing. “Buyers should be thoughtful when proposing dates and deadlines, such as the projected closing date, title work or other due diligence,” says Stewart. “Sellers hate having staggered dates. A strong offer will align those dates-so multiple deadlines are completed and crossed off the same day. That’s going to be very appealing to the seller.” Keep a cool head, stick to your limits and trust your realtor’s counsel If a seller’s market is leaving you with limited choices, it can become easy to get caught up in the heat of the moment when you finally find a home you like. “The offer stage is not the appropriate time to become emotionally attached,” says Stewart. “If you love a house, you need to realize there are twenty other buyers out there who probably feel the same way and are also going to write an offer.” Crafting a winning offer is an art, and in today’s red-hot market, can feel like rocket science. But just like all the steps presented in this homebuyer’s blog, preparing beforehand is key to a smooth experience. If you have done your offer homework on the purchase agreement, the house and the seller, you will feel a lot more confident going into a bidding war. Stick to your limits while remaining open and optimistic. Remember: an offer is your one opportunity to start a direct conversation with the seller. Take a moment to reflect on what will make your offer the most compelling in this interaction.. And if you would like to learn more about how an Accept.inc Cash Offer can remove finance and appraisal contingencies to make your offer stand out from the pack, consider getting Cash-Approved today.
Jennifer Shapiro | Jun 9, 2021
How to Buy a Home - Step Five: House Hunt in a Hot Market
If you didn’t catch our last blog post on choosing a real estate agent before you start your home search, you can get caught up here. In today’s blog, we take a look at the fifth step to purchasing a home: how to house hunt in a hot market. Today’s housing market is hotter than ever. A decade of underbuilding homes has caught up just as demand from the pandemic is hitting an all-time high. With the continuation of record- low mortgage rates and lack of housing supply, the market is not expected to cool off anytime soon. If you’re house hunting in 2021, you can expect to be up against a lot of competition and it may take longer than usual to win a home. In a market this aggressive it’s likely you will only have one chance to see a home before you submit an offer and you may find yourself in a same-day bidding war. So, if you do see a property you like, you will need to put your best foot forward! Prepare as though you will be submitting a same-day offer In a market this fierce, there is a good chance you will not get to see homes at your own pace. The time you are given to spend looking at a house will be rushed because most homes on the market right now have back-to-back showings. Preparing beforehand will allow you more time and space to focus once inside the home and help you reduce mistakes or delays. Make a day of it To make efficient use of your time, make a day of it. Give your agent some lead time to line up as many private showings as possible in one day when you are available. If you want to see as many homes as possible during daylight hours, you might want to consider skipping a break that day and starting in the morning as early as possible. Likewise, it would be wise to avoid making plans for that evening in case you end up submitting an offer that same day. Write down your wish list Write a list of wants and needs for the home, then prioritize each list. If you’re buying a home with a spouse, make separate lists and compare. Review with your real estate agent before and then revisit after seeing 10 homes as a reality check on your price point and to narrow down the list. Do your homework Ask your agent to research “comps” for the neighborhoods you are targeting for your hunt. Studying MLS data of recent sale prices in the neighborhood ahead of time will give you an accurate reality check on the current value. Don’t rely on being able to pull up an online estimate while you’re touring the home. Remember: the data that is compiled by third-party sources on the Internet and is not always correct or consistent. Ask your agent to generate a comps report and then walk you through it. Try to have this conversation at least few days in advance so you have time to review and are educated on the market prior to house hunting. What to Bring Cash Approval ™ or pre-approval letter dated within last 30 days Measuring tape Anyone else who has a stake in the purchase decision. Again-you might have only one shot to see the house before submitting an offer, so you’re going to want to make it count. Pro-Tip: Ask your agent to prepare a folder with a hard copy of MLS sheets for each house you are seeing. Writing some quick notes on each home’s MLS sheet will help keep the details of each home organized in your head for reviewing later. The MLS sheets will also provide you with valuable information on the home and community including the price and date when the home last sold, property taxes, HOA fees and restrictions. What to look for when touring a home Make yourself at home and test drive everything If you are absolutely certain that you don’t like a home, it’s ok to pivot and cut the tour short. On the flip side, if you do like it, take your time and make the most of it. Don’t be shy-this is your time to test drive the house. It is critical that you can see everything in the home clearly. Make sure all the lights are on and the curtains and blinds are open. Bret Weinstein, Founder and CEO of BSW Real Estate prefers to split up from clients when touring a home to maximize the time. “My job is to walk through the house at the same time as you. And then we can meet up at the end and I can point out any material issues I saw, like is the home structurally sound? I want my clients focused on whether they feel like they could live in the home and would feel comfortable. My job is to walk through and make sure that the house is going to pass an inspection.” Checklist for interior and exterior Engage your senses when touring homes. Does the home smell stale or musty? Can you hear traffic from the street or highway? Do you see wear and tear that wasn’t visible in online photos? Here’s a quick list of what to check for both inside and outside the home: Interior: Natural light and views Width and type of stairway Closet and storage space Plumbing and water pressure Type of flooring in each room Age and condition of heating and cooling systems Age and condition of appliances Measure for furniture Exterior Property boundaries Garage size Landscaping Porches, covered patios and decks Age and condition of roof Age and condition of windows Exterior doors Proximity of neighboring homes and how well they maintain their yard Pro-Tip: When surveying the interior and exterior of a home, it’s important to be honest with yourself and separate logic from emotion. Don't let cosmetic features like wallpaper that are easy or affordable to fix or replace dictate a homebuying decision. Determine what your budget for repairs, replacements and renovations is going in and focus on calculating the big-ticket items that can be expensive or intensive to fix like replacing a roof or heating and cooling systems. Recognize that certain things like the floorplan can be costly to modify, but things like showerheads are not and probably shouldn’t carry too much weight in your decision. How to take notes and stay organized when house hunting It’s very common for homebuyers to finish a long day of house hunting and struggle to remember individual houses- everything becomes one big blur. Do yourself a favor and take 5 minutes for notes, pictures and videos while you are in the homes. Give each home a rating of either A, B or C and jot down some quick handwritten notes on the home’s MLS sheet so it is easier to connect the dots later. Walk through the home once and for “A” leads that are top contenders, take a second walkthrough video tour of the home by starting on the street where you can begin filming the block and neighboring homes as you walk inside. Pro-Tip: Write down a few features or personal impressions that stood out about the home that will jog your memory later such as, “house smelled like curry, fire pit in backyard, Kim Kardashian walk-in closet Top 10 Questions to ask the seller’s agent Other than price, what is the seller looking for in an offer?Why are the owners moving? Where are they going?How long have the current owners lived here? Were they the original owners? How old is the home? How old is the roof? How old are the heating and cooling systems and can they show you show where all are located? Are there any repairs or replacements needed? Can you see a copy of the current owner’s utility and maintenance bills? Have there been any offers on the home? How recently and rejected at what price? Is the seller currently reviewing any offers? How many? When is their deadline for you to submit an offer? Pro-Tip: Don’t be too open in sharing your thoughts and feelings with the real estate agent who is showing you the home. Even if it is not the seller’s agent, it could hurt your ability to negotiate later. Debrief with your agent Give your realtor immediate feedback when you leave the house while it’s still fresh in your head. Let them know what you loved or hated about the house, but specifically-what about it was the deal-breaker. This is also the best time to ask your agent their opinion on the home overall, but particularly, price and value. “As soon as we walk out of the house, I ask my buyers, ‘would you buy this home, yes or no?’ says Weinstein. “If the answer is anything other than yes then we move on to the next house. I want to get their gut reaction. Because I think that's where there is so much value.” Bring your head but don’t forget your heart With all these guidelines ruling your home search, it can be easy to get caught up in logic, feel overwhelmed, and lose the joy of shopping for a home. But buying a home is very personal and emotional; there is no app or algorithm that can predict what home you will or won’t fall in love with. Don’t forget to take your heart with you on your homebuying journey and look for the “wow”-that moment you walk into a home and something about it takes your breath away or makes your head turn. Something about it that makes you feel at home. House hunting can feel like a competitive sport in 2021 and easily leave you discouraged at the end of the day. But if you take a little time to prepare in advance and be proactive about it, you’ll be ready to submit a winning offer the same day you find the one.
Jennifer Shapiro | Apr 8, 2021