Here are some tips on writing offers in a dynamic real estate market.
Purchase contract dynamics.
When writing offers in a dynamic real estate market, most buyers believe they need a downpayment equal to 20% of the sales price. An article released in August 2020 stated the average down payment for San Jose was actually 12%. So why 20%? Remember, borrowing money is about convincing the bank you are at low risk for default. There are loan products that allow you to place as little as 3% down. Homes purchased with less than 20% down can be subject to mortgage insurance with adds to the monthly payment total. The key is to balance the down payment with the monthly payment and find that sweet spot to buy a home.
Every purchase contract is based on price, terms, and conditions.
In our current market, most offers are written completely NON-CONTINGENT. This means, that once the offer is accepted, you are waiving typical contingencies for loan, appraisal, and investigation. Most sellers are completing inspections and disclosures in advance of going on the market. Therefore, as a buyer, you know a great deal about the home before ever writing an offer. With no contingencies to purchase, if the buyer chooses to cancel the good faith deposit of 3% may be at risk. The bottom line, contingencies are for your protection. Be very clear on the risk before entering into a non-contingent offer.
Non-contingent also means you are not purchasing based on whether you can get a loan and/or whether or not the home appraises for the value you wrote in your offer. In a highly competitive market buyers have elected to remove the appraisal contingency. If the appraised value comes in lower than the offer price, the BUYER makes up the difference in down payment or through an increase in the loan amount.
Writing an offer Not-contingent on the ability to obtain a loan is not uncommon as most buyers are 90% pre-approved before they make an offer. The risks are the potential for changing interest rates and job stability. Of course, work with your loan professional on the best time to lock your rate.
Seems scary – right? The reality? It is doable. This market is definitely not for the faint of heart. The silicon valley real estate market is never easy! Each home is different. Each deal is different. We will work together to limit risk while allowing you the opportunity to write the strongest offer possible on your new home. Ready? Let’s get started on a plan! Schedule a time to speak with me directly.