How to Make a Cash Offer with a Mortgage in Denver
Kelly K. | Sep 17, 2021
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By Jennifer Shapiro on Jun 9, 2021
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.
Here’s a quick list of what you should complete prior to submitting an offer:
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.
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.
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.
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.
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.
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