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Real Estate Tips & Resources

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Homebuyer Resources
Should You Use an Escalation Clause in Your Denver House Offer?
Imagine it: you find your dream house in Denver. It’s absolutely perfect for your family...and about a dozen other families, too. Let the bidding war begin! Buyers looking to get an edge in the Denver real estate market often add an escalation clause to their offers, stating how much higher they will go in response to competing bids. Should you? Learn how an escalation clause in real estate works and if it’s right for your situation. What is an escalation clause in real estate? An escalation clause in a real estate contract spells out that you’re willing to raise the offer price in response to a higher, competing offer the seller might receive. The clause sets a specific amount above the competing offer that you would be willing to pay, up to a maximum limit. Here’s an example of how it works: you find the perfect home and submit an offer of $300,000. With your offer, you submit an escalation clause, setting the maximum limit of $325,000 for your final offer. The terms of the clause state you will escalate your bid $1,000 over the next highest offer (meaning someone who bids higher than your $300,000 offer), until the maximum escalation limit of $325,000 is reached. So if someone else bids $310,000, your escalation kicks in and transforms your offer into a $311,000 bid, and so on, until you hit $325,000, at which point your escalation stops. The idea is that by using an escalation clause, you might prevent another buyer from outbidding you in a situation where you'd be willing to pay a little more than your initial offer. The escalation clause lets you "escalate" automatically. But, don’t jump the gun on submitting one. According to realtor.com, escalation clauses “should only be used when the buyer is fairly confident that there will be multiple offers, or when the buyer expects to pay an increased price.” Is an escalation clause a good or bad idea? Whether an escalation clause is a good idea or bad idea depends on the market. In Denver, with the combination of low inventory and low interest rates, competition in the real estate market has been more intense than ever. Using an escalation clause might give you an edge; or, it might just be table stakes. On the other hand, an escalation clause would be a bad idea if you can’t cover the difference between your pre-qualified loan amount and the escalation price. Going back to your perfect home scenario: if you qualify for a loan of $300,000 — based on your financials and the assessment of the property’s value — and you choose to bid higher than that, you will be responsible for coming up with the escalation difference out-of-pocket. Also, some sellers choose not to accept offers with an escalation clause because they want you to submit your highest offer up front. How do you write an escalation clause? The best thing to do is talk to your real estate agent about whether escalating would help your offer; and if so, under what terms. According to realtor.com, an escalation clause should focus on the following: What is the original offer of purchase price?How much will that price escalate above any other competitive bid?What is the maximum amount that the purchase price can reach in case of multiple offers? It’s also a good idea to make sure your escalation clause includes language requiring documentation from the seller proving there was a higher offer. Without it, you might end up paying more for no reason. Have you considered making a cash offer? An escalation clause may or may not be the most effective tool for securing your new Denver home, depending on your goals and situation — however, making a cash offer might give you the big advantage you need. Cash sales are on the rise, according to the National Association of Realtors, whose August 2021 survey showed that cash sales accounted for 23% of existing-home sales. In a multi-offer situation, it's not necessarily the highest bid that wins. A real estate cash offer can be more attractive to the seller, giving you more leverage to make a competitive offer, winning at a lower price or getting more concessions. With Accept.inc, you can get Cash Approved™, and gain the power to make real cash offers at no additional cost. Accept.inc offers beat an average of nine offers in multi-offer situations, and data shows that Accept.inc. buyers save on average $13,000 in multi-offer situations, when compared to the highest offer. Learn how to gain the competitive advantage of an all-cash offer with Accept.inc. today!
Stella W | Dec 21, 2021
Home Selling Resources
3 Benefits of Accepting a Cash Offer When Selling Your Home
We get it: selling a home takes the cake as one of the most difficult (and stressful) financial experiences we can face over the course of our lives. From having to navigate challenging contingencies to worrying if your sale will close quickly and seamlessly, the selling process can be pretty overwhelming...to put it lightly. Whether you’re anxious about the possibility of a long, drawn-out process or you’re worried about the costs associated with selling a home, you’re not alone. As you know, when a deal falls through, you have to re-list your home. And when you relist your home, prospective buyers often assume there’s something wrong with the home, which can make it take even longer to get a new offer and, ultimately, cash in your bank account. As a seller, there are three major benefits to accepting a cash offer on your house. There are a number of advantages to accepting a cash offer instead of working with the approximately 86% of buyers who pursue a traditional mortgage. And in a hot real estate market, an all-cash offer doesn’t necessarily mean having to accept an offer below-asking price or dealing solely with institutional buyers. It’s a common assumption that all-cash home purchases are a rarity. However, they account for a pretty healthy portion of property sales – representing 36% of home sales in 2020 alone, according to Realtor.com. From a speedier close to cost savings, here’s a look at the three biggest reasons to consider an all-cash offer on a house. Benefit #1: Cash Offers Close Faster Maybe you’re relocating for an employment opportunity. Or perhaps you’re expanding your family and upgrading to a larger home. Whatever the case may be, by accepting a cash offer on a house, you’ll speed up the process of getting your house sold. Sellers prefer cash offers because selling a home through a traditional mortgage lender is time-consuming, taking an average of 47 days to close (according to Ellie Mae). The culprit? Lenders require a lengthy underwriting process at the end of the sales process. With an all-cash offer, the average time to close is approximately 2 weeks. Between the initial pre-approval and the loan finalization, if a buyer’s financial picture changes, or they fail to satisfy certain requirements, the lender can decide to decline their loan. The result? Your deal will fall through and you’re left back at square one of the selling process.Benefit #2: Cash Offers Eliminate the Risk of Financing Falling Through Month over month, NAR’s Realtors® Confidence Index continues to list “issues related to obtaining financing” as the primary cause of delays or terminations of real estate contracts. From buyer financial troubles to third-party appraisals, several things can cause lender financing to be at risk. If the buyer is unable to secure a traditional mortgage at all — or for the amount they "pre-qualified" for — they won't be able to purchase your home. As a result, you'll either need to pursue the next offer in your pipeline or place the house back on the market. Best case scenario: it's a hot market and the whole process starts all over. Worst case scenario: the market softens and it takes longer AND you need to lower the listing price. But if you're presented with a cash offer, you don't have to anxiously chew down your fingernails, worrying that the deal could collapse at the 11th hour because of financing problems. Benefit #3: You Won’t Lose the Deal Over an Appraisal Contingency Another way a traditional mortgage lender can kill your sale is via an appraisal contingency. An appraisal contingency is a clause that states the contract can be terminated if the seller’s asking price isn’t consistent with the assessed market value of the house. An appraiser’s evaluation combines tax records, prices of comparable homes recently sold in the local area, a personal assessment of the property’s condition, amenities and features, location in the neighborhood and several other considerations. If your home doesn't appraise at the list price or higher, the lender can refuse to approve the buyer’s mortgage loan. Or, the lender may agree to finance the home, but the buyer would be responsible for fronting the difference. Oftentimes, buyers don’t have the financial means or are unwilling to cover the difference. If that's the case, the buyer can rescind their offer. When you receive an Accept.inc offer, however, you'll have confidence the house has already been offer-checked and the sale is approved for the amount of the offer. Enjoy the Benefits of a Cash Offer on Your House From neighborhood parties to engagements to a baby’s first steps, your home is not only a reflection of you, but it’s also where priceless memories are made. What it shouldn’t be: a source of stress and anxiety when it comes to the home selling process. We founded Accept.inc as a way to introduce a better kind of mortgage lending to the market – one that gives everyday homebuyers the power to buy a house with cash. As a seller, this translates into a streamlined process that solves many of the problems associated with the old way of getting mortgages. Helping you sell your home 3x faster than the national average and avoiding deals from crashing and burning is what we’re all about. Because having to relist a home is certainly not our definition of fun, and we’re guessing it’s not something you want to experience either. All you’re responsible for is accepting the strongest all-cash offer in real estate! To learn more about the benefits of partnering with Accept.inc, download our free Seller Information Packet today.
Kelly K. | Jul 27, 2021
Homebuyer Resources
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
Overhead shot of an agent holding an offer with a pre-approval letter that was just beaten by a cash offer
Blog
Why Pre-Approval Letters are Just Paper Promises
Why Offers with a Pre-Approval Letter are Less Competitive than Ever There are two main reasons that mortgage offers with pre-approval letters are struggling more than ever to compete in today’s market: the conditions of the current seller’s market, and issues with the traditional mortgage process. Let’s Start with the Market Conditions Never have sellers had the ability to be as picky as they are in 2021. In 2020, real estate took a dramatic turn in terms of how homes are bought and sold. The housing market was already struggling with a noticeable lack of supply. Then came the pandemic, which fueled a desire for homeownership that we haven't seen in a long time...arguably, ever. Much of the workforce began working remotely, and the word “home” took on new meaning for homebuyers as a 24/7 destination and haven. Buyers from all over the country migrated in droves to neighborhoods in the suburbs, even if it meant having to relocate out-of-state. This trend is showing no sign of slowing in 2021. Locations that weren’t previously considered a possibility for many Americans have now become a pressing reality for health, financial, and other reasons. This increase in housing demand skyrocketed as supply continued to dwindle, and mortgage rates fell to historical lows. This trifecta of factors has created a record seller’s market with no end in sight. A balanced market is usually marked by four months of inventory. This means that at the current level of demand, if new homes stopped being listed, the supply would last approximately four months. Right now, many markets nationwide barely have three weeks of inventory, which means they are dangerously close to running out listings. Given these market conditions, standard homebuyers, who typically rely on a pre-approval letter and a mortgage offer to secure a home, are increasingly being left on the sidelines waiting the game out. Now, About the Traditional Mortgage Process... When the mortgage box is checked on a real estate offer, the seller and listing agent immediately think: ok…the buyer is saying a bank will probably loan them the money…. so what? show me the money! This is because the traditional mortgage process relies on a pre-approval letter, which is simply a paper promise based off a relatively quick interview. This interview involves asking the buyer about income, debts, etc., and combined with a credit check, gives the loan officer what he or she needs to calculate debt-to income ratio. If everything lines up, then…. Voila! The borrower now has a pre-approval letter based entirely on his or her word. Notice that in this pre-approval process, nothing was done to actually verify income with hard documents. This doesn’t happen until 30 or more days after the home goes under contract, during underwriting, often the same week as the home is set to close. By this time, the home has been under contract for weeks or months, and the seller has most likely stopped marketing and showing the property. All it takes is an underwriter spotting a single red flag a few days before the closing to cause the whole deal to fall apart. According to the National Association of Realtors, mortgage contingencies have a 21% fallout rate (the rate at which deals fall through after going under contract). In a competitive seller’s market, this risk for the seller is why an offer with a mortgage contingency may never make it to the pile of offers being considered. If the buyer’s loan does not come together in time, it is back to square one for the seller and listing agent. They will have to re-list their home, causing other agents and buyers to wonder what happened. Prospective buyers may assume there was a problem with the home, never knowing the real issue was the previous buyer’s financing. Often, sellers have to reduce the list price as a result. For buyers, it can be heartbreaking to invest so much time in a home search, and pay for all the due diligence only to find out: they were never really qualified to get financing in the first place. In Summary... With all the contingencies associated with a mortgage offer (and we didn’t even get to appraisals), it is easy to see why it is the most unattractive checked box on a real estate offer. That’s why companies like Accept.inc are seeing such success and rapid growth by turning mortgage offers into all-cash offers. Thus, levelling the playing field to give buyers that qualify for a mortgage an equal chance at winning with a cash offer.
Jennifer Shapiro | Feb 1, 2021