I recently had a client that was selling their home and purchasing a larger one to accommodate their growing family. Unfortunately, the pre-approval from the buyer was from an out of state lender who was unfamiliar with the local condominium market. The result was an unqualified buyer! So what should you do when selling a home is this hot market?
1 – Don’t accept the highest price offer without asking the right questions. For example:
- How strong is the buyer’s financing approval? Even the buyer claims to be “pre-approved”, the deal may fall through because of financing conditions unrelated to the property itself.
- Is the buyer willing to waive the financing contingency? The buyer may be able to make the offer contingent on an appraisal, title, and other property-specific items instead of the much broader financing contingency found in most purchase agreements. This way, you know the lender has already fully approved the buyer’s credit report, income documentation, and asset documentation.
- What will the buyer do if the appraisal doesn’t come in at value? This brings us to the second point:
2 – Be prepared for a disappointing appraised value. Appraisers are required by law to use the most recent comparable sales when determining the appraised value of your home. In a hot market, the most recent comparable sale may be for a price that’s less than the price at which you’re selling your home. This means that the buyer needs to be prepared to either: (1) come up with a larger down payment to make up the difference; or (2) choose a different loan program that allows a high loan-to-value (LTV) ratio. These can include loan programs with mortgage insurance.
3 – Don’t be turned off by a buyer who has a small down payment. While cash buyers are typically able to move quickly, buyers who use financing may be able to offer you a higher price. You can have your cake (higher price) and eat it too (close the deal in a reasonable timeframe) as long as you make sure that you’re dealing with a strong buyer. If you’re not confident with the buyer’s lender, or if you don’t trust their “pre-approval”, you may want to ask them to apply with a lender you trust. Although you can’t require the buyer to use your preferred lender, you can certainly ask them to do so.
About the Author
David Reznikow is a loan officer at Fairway Independent Mortgage. A Brookline native and BHS graduate, Reznikow is currently a Newton resident but has remained part of the Brookline community. As a Brookline Chamber of Commerce Director and business member Reznikow has had the opportunity to add to the vibrancy and diversity of the business community while helping to raise funds for local charitable organizations through many Chamber initiatives. Both Reznikow’s parents have businesses in Brookline, still live in the home where they raised three children, and can often be found playing with their grandson, Cameron, at Dean Park