5 Reasons the Highest Offer Won’t Always Get You the House

When it comes to buying a house, the highest offer always gets the house — right? Surprise! The answer is often “no.” Conventional wisdom might suggest that during negotiations, especially in a multiple-offer situation, the buyer who throws the most money at the seller will snag the house.

In reality, however, it doesn’t always end up that way. Sure, a hefty sum is the first thing every seller wants to see, but any good real estate agent will advise a seller that each offer is a sum of its parts.

Here are five reasons why your lower offer might just beat that higher one after all.

1. Cash is always kingIf you can pay cash, you’ll likely win out over a higher-priced offer. It may sound impossible to make such a huge purchase without any financing, but many people do it.

According to RealtyTrac, 43 percent of all home sales in 2014 were all-cash deals. That’s because with an all-cash buyer, there are no mortgages and lenders involved, escrow closes faster, and there’s no appraisal to worry about.

2. The next best thing to cash: a preapproval letter A preapproval letter is the confirmation you’ve acquired from your mortgage broker or bank that confirms you’re ready to buy in a set price range and have been preapproved for the loan.

In essence, the preapproval letter turns you into a virtual cash buyer, as mortgages can be harder to come by these days. Other buyers could still make a higher offer, but if they’re not preapproved, you may have the leg up — even at a slightly lower price.

3. Timeline flexibilityTypically, the closing period lasts 30, 45, 60, or 90 days. Customizing the length of the closing to suit the seller’s needs can often help seal the deal over a higher offer. Sellers almost always want fast closings, usually 30 days. If you have all your ducks in a row, you may be able to do this.

However, there can be extenuating circumstances. What if the house they want to buy won’t be ready for 60 days? The sellers will need more time. Find out what they need and then offer it to them.

4. The “Please let me buy your house” letterRecently, a seller had three similar offers on the table when he was selling his house. Two of the offers came with very heartfelt letters. He was actually put off by the buyer who didn’t send a letter, since the other buyers did. That small piece of paper made a huge impact — and he sold to one of the letter writers, even though theirs was a slightly lower offer than the non-letter writer’s.

Writing a letter may not get you the deal, but pay attention to trends in your market. If yours is the only offer that doesn’t include one, your house hunting days could be extended.

5. Not overloading on contingencies Contingencies are negotiating tools that give you an opportunity to walk away without consequence. The most common contingencies are the inspection, the financing, and the appraisal.

However, every contingency you add has the potential to make your offer look weaker, because each one can make it that much harder to close the deal. Make sure you really need every contingency before building them into your offer.

Here are some details on specific contingencies and how to handle them.

Contingent upon inspection: Some experts suggest skipping the inspection contingency to make your offer more attractive. Here’s my advice: never give up this one. After your inspection, give the seller your list of problems along with the opportunity to fix them, make a price adjustment, or give you a credit. If the seller doesn’t agree to your requests, you can walk. You take a huge risk if you waive this one. A much better option would be to tighten up the timeline. Offer to have the inspection completed in the first few days after opening escrow and to give a response to the inspection results within a few days.

Contingent upon financing: Again, this is a contingency you should never omit, unless you’re paying in cash. With most 30- to 45-day closings, you will have 17 to 21 days to get your mortgage approval. Having that preapproval letter will make this financing contingency less of an issue for your seller.

Contingent upon appraisal: It’s possible that the house you’ve fallen for could fail to appraise for what you have offered to pay. However, if you’ve done your homework, analyzed the comps, and are comfortable with the price you’ve offered, then you might consider waiving this one. The downside (which can be significant) is that you’ll have to make up the difference of the agreed-upon sales price. But waiving this contingency can give you a big leg up over the competition — especially in a hot market.

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Homeownership Has Its Benefits

7 Steps to a Stress-Free Home Closing

This cheat sheet helps you do your homework, so you know what you’re signing when you close the sale of your home.

You’ve already cleared several hurdles by finding the right home, negotiating the best price, and getting approved for a mortgage. 

The last obstacle on your homebuying track is the closing, which can be both tedious and tense. By knowing what to expect and doing some legwork, you can smoothly put your closing behind you. These seven steps will guide you.

1. Set a Closing Date
Ask your title company to set a closing date and time that meshes with the end of your lease or the sale of your existing home. Don’t want to skip work? Ask for an evening or weekend closing. Tight on cash? Schedule your closing for the end of the month. That’s when you’ll pay the least amount of interest at the closing table.

2. Gather Your Funds
Buyers usually have to bring money to the closing. Ask the title company what forms of payment it accepts. Chances are you can’t use a personal check.

If you have to move money into your bank account to pay your closing costs, do so a week ahead to avoid last-minute problems. If the title company requires the funds in the form of a cashier’s check, stop by the bank a few days before closing to pick it up.

3. Purchase Title Insurance
If you’re getting a mortgage, you have to buy a title insurance policy. Think it protects you against problems with the title of your home? Nope, it protects the lender in case the sellers really didn’t own the home or someone else had a claim on it.

To cover yourself, you can buy an owner’s title policy from the same insurance company that sells you the lender’s title policy. Or, shop online at Closing.com, EasyTitleQuote.com, or FreeTitleQuote.com. An owner’s title policy insures you against losses from fraudulent claims against your ownership and errors in earlier sales. In some areas, sellers traditionally pay for the buyer’s title policy.

Whether or not you get the owner’s policy, if you buy a title policy from the same company that issued the prior owner’s title insurance, you can ask for a reissue discount or “bring-down” rate. There’s a discount because the title company only has to check the records filed since that prior owner bought the home, not since the dawn of time.

4. Line Up Homeowners Insurance
Get quotes and compare policies to be sure coverage will start by your closing date. An annual policy should run $500 to $1,000, depending on your home’s size, age, and amenities. To get a lower premium, opt for a high deductible or buy your homeowners insurance from the same company that insures your car.

If you live in an area where natural disasters occur, like earthquakes, floods, or hurricanes, you’ll need separate insurance to protect your home from those hazards.

5. Review Your Good Faith Estimate and HUD-1 Settlement Sheet
Your lender already gave you a Good Faith Estimate (GFE) that showed your estimated closing fees. Some of the fees on your GFE can’t change and others can rise by 10%. Before you go to the closing, compare the numbers on your GFE with the numbers on your HUD-1 settlement statement. Question your loan officer about any fees that increased.

6. Do a Walk-Through
Schedule an appointment to walk through the home one last time just before your closing.

• Make sure repairs you requested have been made.
• Look for major changes since you last viewed the property.
• See if the sellers left everything they promised to leave.
• Check to see that the sellers took all their personal belongings.
• Test electronics and appliances to ensure they’re still working.
• Turn on the HVAC and hot water. Are they functioning right?
• Walk the yard to be sure no plants or shrubs have been removed.

7. Resolve Issues Identified in Your Walk-Through
If your walk-through uncovers problems:

1. Delay the closing until the seller corrects them (if your state allows it). But that’s often not feasible because your lease is probably over and you’ve already scheduled movers. 2. Negotiate a discount to your sales price to cover the cost of the work needed. If the air conditioning is on the fritz and a contractor says the repair will cost $500, ask that the sales price be reduced by that amount. If you make that request at closing, however, be ready for a delay while the title company redoes the paperwork. 3. Have the title company hold a portion of the seller’s proceeds in escrow until the dispute is resolved. Once that happens, the funds will be released to you or the seller, depending on the outcome.

How to Pick Paint Colors

Paint has remodeling power when you use it to emphasize a room’s best features or play down the flaws. 

Every home suffers a few negatives, but not every solution requires pricey structural changes. 

Paint is an often-overlooked, low-cost remodeler’s remedy for common complaints with interiors, offering the chameleon-like ability to lighten, warm, enlarge, erase, or attract attention.

“Paint is a powerful tool that can enhance the architectural character and intent of space,” says Minneapolis architect Petra Schwartze of TEA2 Architects. “As you choose your paint, think about what the experience in the room should be.”

More Schwartze advice:

• Always sample paint colors on a few walls. Don’t be shy about painting a few large swaths on walls and trim to consider the effect of natural and artificial lighting. Add samples to opposite sides of a room to judge the paint color from different angles.
• Check the space with the samples in place and watch how the paint color changes at different times of the day.
• Evaluate your reaction to the proposed colors: Does the space feel cozy or is the openness enhanced?

How to Enlarge Space with Color

Painting walls white, cream, pastels, or cool colors (tinged with blue or green) creates the illusion of more space by reflecting light. Paint trim similar to walls (or use white on trim) to ensure a seamless appearance that visually expands space.

In addition, using white or light colors on walls lifts the ceiling; darker shades can have a similar effect if you select a high-gloss paint sheen, which reflects light and enhances space.

Use a monochromatic scheme to amplify the dimensions of a room. Select furnishings in one color and paint walls and trim to match. Lack of contrast makes a room seem more spacious.

Make walls appear taller by extending wall color onto the ceiling. Create a 6- to 12-inch-wide border of wall color on the entire ceiling perimeter, or wherever walls meet the ceiling.

Vertical and horizontal stripes of alternating color can make a room grand. Although vertical stripes enhance room height by drawing the eye upward, horizontal stripes lure your gaze around the perimeter, making walls seem further away. Use similar light colors for low-contrast stripes, and your room will look even larger.

Creating Intimacy

When a space feels cavernous, draw walls inward and make it cozy with warm colors (red-tinged) because darker hues absorb light. Similarly, a dark or warm color overhead (in a flat finish) helps make rooms with high or vaulted ceilings less voluminous.

Give Peace a Chance

The right paint choice can lend tranquility to a bathroom, master suite, or other quiet, personal space. A palette of soft, understated color or muted tones help you instill a calming atmosphere. Some good choices include pale lavenders, light grays or greens, and wispy blues.

Define Your Assets

Call out notable features in a room with paint. Dress crown moldings and other trims in white to make them pop against walls with color. Make a fireplace or other feature a focal point by painting it a color that contrasts with walls.

“Using a higher sheen of paint on woodwork, such as baseboards and door or window casings,” says Schwartze, “creates a crisp edge and clear transition from the wall to the trim.”

Hide Flaws

Not everything should stand out in a space. Using a low-contrast palette is a good way to hide unappealing elements or flaws. Conduit, radiators, and other components painted the same color as the wall will seem to disappear.

Selecting low-sheen or flat paint colors also helps hide flaws. Unless walls are smooth, avoid using high-gloss paint because it reflects light and calls attention to an uneven surface.

What’s the Cost?

As a DIY job, painting a 12-foot-by-12-foot space costs about $150, including paint, primer, brushes, drop cloths, and other painting tools and supplies. A professionally painted room using high-quality, brand-name paint costs $200 to $400.

Happy Hannukah!

Home Matters

The Lowdown on Down Payments: Everything a Home Buyer Needs to Know

Ask most people what’s the biggest obstacle to buying a home, and hands down they’ll say it’s scraping together enough money for a down payment. But understand a key point: This is not a separate and distinct issue from landing a mortgage. 

Lenders, after all, like to see clients lay down a sizable chunk of change before they fork over a mortgage, because this shows you have skin in the game and lowers the odds that you’ll default on your loan. 

So how large a down payment do you really need?

Why a 20% down payment is best
Most financial planners recommend that home buyers make a down payment amounting to 20% of the price of the home.

Sure, that’s a lot of cash, which may explain why one survey by NerdWallet of 2,000 Americans found that we spend an average of three years shoring up our finances before buying a home. But there’s good reason to start pinching pennies early: A 20% down payment enables you to avoid paying private mortgage insurance.

What is private mortgage insurance?
If you have good credit and can put at least 10% down, you can still qualify for a conventional loan. The catch? You’ll need to pay private mortgage insurance, a premium that protects the lender in case you default on the loan. PMI ranges from about 0.3% to 1.15% of your home loan. But with interest rates being as low as they are, buying now can be a smart move from a long-term savings perspective.

“Mortgage insurance has gained a negative connotation, but it enables many people to buy homes who wouldn’t otherwise be able to,” says Barbara Carrollo-Loeffler, director of consumer and residential lending at Provident Bank.

Another silver lining: Once you have at least 20% equity in your home, you can ask your lender to cancel your PMI. And once you have 22% equity, the lender is required to automatically cancel the coverage. (One caveat: Some lenders require homeowners to get a home appraisal before they’ll remove it.)

Of course, purchasing a home now also means that you’ll start gaining equity in the home, rather than continuing to burn money on rent. You can use realtor.com®’s Rent or Buy calculator to see how much you’ll save each month.

Don’t have 20% or even 10%? Here’s what to do
Don’t have that kind of cash lying around? You have options. Depending on your credit score and income, you could qualify for one of over 2,200 down payment assistance programs nationwide, which help out home buyers with low-interest loans, grants, and tax credits. While a certain portion is geared to low-income buyers, you don’t have to be down and out.

According to Jonathan Smoke, chief economist of realtor.com: “Most consumers do not know about these programs, and those that do assume it’s more difficult to get than it is.”

And the savings can be substantial: Home buyers who use down payment assistance programs save an average of $17,766 over the life of their loan, according to a report by RealtyTrac. But we’re talking even bigger cash in expensive housing markets such as Los Angeles, where the average down payment assistance is a handsome $40,598.

Another option is a government-backed mortgage, if you qualify. Federal Housing Administration loans let borrowers put down as little as 3.5%; if you or your spouse served in the military, you’re truly in luck: Veterans Affairs loans are available with 0% down. You’ll need to meet certain income and credit requirements—FHA loans call for a minimum credit score of 500, and VA loans require a minimum score of 620—but these loan programs could allow you to purchase a home with less than 20% down.

The downside to small down payments
While making a small down payment may seem dreamy, keep in mind that there are some drawbacks. For one, the amount of money you’re borrowing will obviously be larger, which means you’ll have to make larger monthly mortgage payments. Making matters worse, loans with down payments under 20% typically come with higher interest rates. Therefore, you’ll need to tighten your spending more than if you were making a 20% down payment, but that’s not necessarily a bad thing if it enables you to clinch the keys to a home now, is it?

To get a ballpark figure of the mortgage you can afford and how your down payment affects your finances, punch your salary and other numbers into a home affordability calculator.

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