Agents share how homebuyers with a loan can top all-cash offers

In a frenzied homebuying market, relationships, knowledge and reputation among real estate agents can help an average buyer top many others.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | February 19, 2022

Let’s talk about a market that puts would-be buyers up against some strong odds.

We are experiencing the worst ever inventory levels of Southern California homes for sale. Prices continue to march skyward. And affordability pressures continue to mount as Freddie Mac mortgage rates landed at 3.92% this week.

The last time Freddie rates were this high was nearly three years ago, May 2019.

Yet, somehow some primary residence buyers requiring mortgages are winning the prize over all-cash buyers — investors or not.

To be fair, most agents I spoke with agree, all other things being equal (fast closing and the same or more net money to the seller), the all-cash deal still has a better chance.

So, how are these lucky folks winning the bidding war? Thinking outside of the box, timing, ingenuity and hiring the right agent are the hot button items that allow them to carry the day.

Let’s first look at the dearth of Southern California homes for sale (by county) this week compared with one year ago, according to Steven Thomas of Reports on Housing: Los Angeles 5,100 (7,498 last year), Orange 1,297 (2,368 last year), Riverside 2,253 (2,543 last year), San Bernardino 2,060 (1,640 last year).

Even though San Bernardino County inventory levels are up from last year, “It is still an extremely low level compared to where we were prior to the pandemic,” said Thomas.

The expected market time (until the listed property goes into escrow) for the four-county average is nearly the same at nearly 25 days today compared with nearly 26 days on market one year ago. Still, very short time frames compared with 70-day norms.

Full disclosure: Separately from my own observations, many of these pearls of wisdom I’m sharing come from real estate agents with whom I do business.

Unless you are willing to overpay ridiculously, who you know and who knows who matters more than what you know. Seasoned, reputable agents within their peer groups give you and your offer an immediate edge. If the property’s listing agent has a high confidence level about the buyer’s agent reputation for getting deals done — on time, painlessly as possible and with no funny business — then you are automatically in the running.

“I reassure the listing agent. It’s my reputation,” said Brett Smith, broker-owner of Notch Luxury Properties. “If I haven’t previously done a deal with this listing, I will look up the brokerage’s roster and ask the listing agent to call that person I worked with to check up on me.”

Almost every purchase mortgage I’m arranging right now has a strong connection between the listing agent and the buyer’s agent.

How about a video presentation embedded as part of the written purchase offer from the buyer’s agent? Talk about the property seller and the seller’s agent getting a feel for the buyers and their agent. Candice Blair of Coldwell Banker delivers her buyers’ offers this way.

Non-obvious concessions with less exposure.

Just a few days ago first-time buyer clients of mine were accepted with just 15% down on $900,000-range property. The buyers agreed to pay all settlement charges for the seller along with their own settlement charges. And they agreed to evenly split the transfer tax with the seller.

The buyers didn’t have to waive their appraisal contingency like most all buyers seem to be doing during the pandemic’s buyer frenzy. This deal happened in Alameda County, but you get the idea of how some are sweetening the deal for the seller without having to waive the appraisal contingency upfront.

How important is it for the buyer’s lender to be upfront, center and at the ready? It’s especially important when it comes to a low-down-payment offer at, and not above, market price.

Smith told me he had a recent transaction with just 10% down on an $840,000 home. The loan originator called Smith ahead of the offer. “If I think it will appraise, I’m not worried,” Smith said. The loan approval and the underwriter approval conditions were shared with Smith upfront. “Something like that makes me want to accept the deal.”

As a listing agent, Blair likes to see more skin-in-the-game. For example, the typical earnest money deposit is 3% of the sales price. “More than that shows good faith (that you really want the home),” she said. “Immediately relinquishing a part of the earnest money deposit to the seller upfront (shows commitment).”

Connectivity also is key.

Bram Klein of Keller Williams strongly encourages buyers and their agents to go to the open house to meet the listing agent. “I’d take a family over an investor any day,” said Klein.

Every agent I interviewed pointed to an unprepared buyer’s agent as being an automatic red flag. Anecdotally, there seem to be a lot of them. In this hot market, the last thing anyone wants to deal with is an agent that doesn’t come in clean and concise on all upfront buyer matters. If it starts off badly, it’s only going to get worse from there.

Freddie Mac rate news: The 30-year fixed rate averaged 3.92%, ballooning 23 basis points higher than last week. The 15-year fixed rate averaged 2.93%, up 22 basis points from last week.

The Mortgage Bankers Association reported a 5.4% decrease in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $397 less than this week’s payment of $3,060.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 3.375%, a 15-year conventional at 3.125%, a 30-year conventional at 3.75%, a 15-year conventional high balance ($647,201 to $970,800) at 3.125%, a 30-year high balance conventional at 4.25% and a jumbo 30-year purchase, fixed at 3.75%.

Note: The 30-year FHA conforming loan is limited to loans of $562,350 in the Inland Empire and $647,200 in LA and Orange counties.

Eye catcher loan program of the week: A 30-year adjustable jumbo mortgage, locked for the first 10-years with an interest-only payment at 2.875% without points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.