The short answer is, it depends on which side of the transaction you’re sitting on. The long response goes something like this:
From the Buyer’s Perspective
1. Looking at Mortgage Lending
With current interest rates at around 3% annually, there’s no escaping a continuous demand for mortgage funding. The mortgage lender is one of the real energizers of property markets in the USA (and worldwide) because most homebuyers can’t afford the investment without significant financial assistance. Banks and regional lenders understand that real estate is a relatively safe investment haven that warrants repayment terms from fifteen to thirty years out.
2. Looking at Home Inspections
When buying traditionally, your agent will probably advise you (and rightly so) to present the seller with crucial home inspection wording in the offer. Property defects such as mold, sheetrock damage, faulty pool filters, foundation issues, and more can knock anyone’s equilibrium for a loop after committing to buy. A home inspection contingency is designed for your protection and contains the power to address previously undiscovered disrepair that emerges days after an offer submission.
From a Seller’s Perspective, When Going the Traditional Route
Home sellers are on the hook for around 6% agents’ commission on closing a deal and many other fees related to taxes and state regulations. That’s generally clear when you talk to your realtor for the first time. The things that aren’t so clear are contingencies that can upend an offer in an instant; the two that jump out are home inspections and mortgage appraisals.
A. The Home Inspection Contingency (as described above)
Until the inspection is over and the parties mutually agree to it, an offer is not an offer. If the seller is unwilling to foot the bill to set things right, and the buyer stubbornly refuses to accept the home with the defects intact, the deal can crater quickly. If anything can take a cordial discussion to a heated exchange, this interaction is it.
B. Beware the Mortgage Appraisal Contingency
A second significant obstruction rests on the buyer’s mortgage provider appraising the property according to expectations. Let’s explain it with an example:
- Assume the buyer’s offer is for $400,000 based on expectations of a 70% LTV (i.e., loan to value) and access to a $280,000 advance (i.e., 70% of $400,000).
- For whatever reason, the lender values the home at $370,000, only offering the buyer a $259,000 funding package (i.e., 70% of $370,000) – a negative gap of $21,000.
- Aside from the probability of sewing doubt in the buyer’s mind, the contingency terms put pressure on the seller and the buyer to accommodate the shortfall. The alternatives are:
- The buyer puts $21,000 extra equity into the deal
- The buyer accepts an offer reduced by $21,000
- There’s a compromise combination of both the above
- With no resolution to address the difference, the deal goes south.
As a seller using a realtor to market your asset, the next time contingency terms pop up in an offer, steel yourself for a volatile ride. While buyers thrive on mortgage support, a third-party funder isn’t necessarily on your side as a seller in a traditional transaction. The same is true of home inspectors representing the buyer. Indeed, both are potential hindrances and disruptors that can make life very stressful.
Home Cash Buyers are the Solution to Contingency ills
Sellers, at this point, may be asking, “Why are you telling me all this? Do you have a solution?” Oh, we have – the home cash buyer route – a compelling way of bypassing contingencies and burdensome costs as highlighted above:
- It enables you to kick the agent commissions to the curb. Home cash buyers like Home Buyers Birmingham use the commission saving and other traditional expense exemptions to level the playing field price-wise.
- With Home Buyers Birmingham, for example, there’s zero need to do all the things realtors insist on to get the home show-ready, like:
- Fixing things up
- Creating curb appeal
- When you get a Home Buyers Birmingham home cash offer, it’s already taken the home inspection issues into account. The price you see is as good as cash in the bank.
- “Fine,” you say, “But what about that appraisal coming down the channel?” It isn’t there because entities like Home Buyers Birmingham work on a 100% cash offer system. There’s no buyer’s lender in the equation to appraise the house and pour icy water on a hot deal.
- No mortgage financing doesn’t mean that home cash buyers reject leveraging out of hand, but corporate funding is something entirely different.. Home Buyers Birmingham and its competitors’ balance sheet items aren’t specific to your house and can’t upset the apple-cart in any way.
- A considerable advantage is that the transactional cycle from the first contact to closing can be as little as a week. Compare this to a realtor process that generally extends into six weeks or more, with contingencies, get-ready costs, and closing fees to contend with at every juncture.
It’s no wonder that more and more sellers turn to home cash buyers like Home Buyers Birmingham. It gives them a smooth process from the time of contact to closing the deal and going liquid – perhaps in less than seven days. Vibrant activity and numerous choices in this alternative home marketing arena keep the offers reasonable. It ensures that the most competitive operators use all the seller’s savings to offer realistic valuations. With all that working in the latter’s favor, the icing on the top is fast clarity:
- Know where you stand the minute a firm offer hits the table
- Remove contingencies from the formula.
- Negotiate smoothly, and close quickly
- Get improved value with traditional expenses and commissions out of the way
A buyer sees it quite differently, but life’s like that. One person’s meat is another’s poison. And so it goes with mortgages and home inspections in real estate transactions.
Home Buyers Birmingham
1821 11th Avenue South Suite #55331
Birmingham, Alabama 35205