The Phoenix valley is one of the hottest real estate markets in the country. Two of our cities are in the top 10 for fastest appreciation!

From being in the trenches, I can tell you that helping a buyer get into a home is hard. Really hard. The competition is strong. And regular home buyers have to compete with large, well funded entities making cash offers well above the list price.

So what are some things that you might be able to do, to mitigate these issues? Talk to your real estate agent! If you don’t have one, (shameless plug) you can call me!

So let’s think about a sale from the Seller’s point of view. They want as much money as they can get, they want the buyer to close on time, and they want to feel like the buyer is well-qualified.

In the past I have bought houses for rentals or for flips, in my own portfolio, and when no one else could get sellers to move at a decent price, I occasionally made the earnest money the full price of the house. What my offer looked like (an example) was: No inspection, no appraisal, offer is $200,000 and the earnest money is $200,000 and we will close as soon as 5 days from acceptance or you can stay for a couple weeks after closing.

An offer like that is really hard for the seller to decline! Because the money is in escrow, they know they won’t get beaten up with repair requests, and there won’t be any appraisal. It is as close to a guaranteed deal as you can get. That’s a really, really strong offer.

Now let’s talk about a weak offer: The earnest money is $500, the offer price is 15% below the asking price, the buyer is also asking the seller to pay 3% in closing costs and for the seller to pay for the appraisal. And closing is in 60 days. The lender is out of state and is someone your agent never heard of. That’s a pretty weak offer – but I have closed a few of those (for clients) as well, but not in market conditions like this.

So what’s a good middle ground? If you are using financing for your purchase, you can offer a higher price, but the appraisal contingency will likely hit – The appraised price is likely to be less than what you offered. So either the seller has to reduce the price, or you have to come up with extra cash to close.

Another piece is that in a financed offer, the down payment (different from the earnest money) can be from 0 (in a VA loan) to 50% or more. (A recent client did a re-fi last month and actually added cash to get the loan below the conventional limit, and ended up with what would be a 70% down payment to get the payment as low as possible)

What a seller wants to see is at least 20% down – it shows the buyer is in a strong position. 10% will work, but each time the amount goes down, the offer is weaker, except for VA buyers who are a little different category.

Again, the earnest money should be substantial. When it is $1,000 for a $300,000 purchase, this is a sign of a weak offer. The earnest should, at a minimum, be 1% of the purchase price. More is better.

Don’t be surprised, if, after your offer is accepted, the property is placed in UCB status – Under Contract, Backup offers sought. This means that the seller is hedging their bets, if for some reason the buyer backs out during the inspection period, then they have a backup offer ready to go.

When my wife and I bought the home we live in now, we had made a slightly low offer, and it was accepted. During the inspection period, the seller refused to fix anything – they wanted us to cancel, because they had a substantially higher backup offer! We took the property as-is.

So be aware that this might happen during the inspection period – be ready to have the seller refuse any substantial repairs. It is just the nature of the market today.

Finally make sure you are using a really competent lender. Many sellers are adding an addendum to the contract which makes the earnest money non-refundable in most cases and eliminates some protections for buyers. The way the Arizona purchase contract is written, a buyer can fail to qualify with the lender on the day of closing and get their earnest money returned. The seller may have kept the house off the market for more than a month and incurred costs – and will not be compensated for those costs.

I have a group of lenders I have used, all of whom are quite good, and provide outstanding customer service. Let me know if you need a referral. And of course (another shameless plug), I’d love to be your selling agent or buyer’s agent.

  • Patrick Harvey
  • West USA Realty
  • 480 390 7369