By Scott Bialek, Co-Founder of Hurst Lending
The Texas real estate market is more competitive than ever. That’s why we created our Dominate with a Cash Offer® program. This program allows you to win against multiple offers. This bidding process can get complicated, so this article outlines some of the common challenges home buyers face and how you can use our program to work around these issues.
When a seller gets multiple offers they are in the driver’s seat and they can make demands that would not come up during more normal times. Often, the seller will ask prospective buyers to make cash offers. Buyer’s who can come up with the cash immediately differentiate themselves from those who cannot. This is an easy method to cull the herd and identify buyers that will give a seller the easiest deal because no financing contingencies.
You may even need to consider making a bid above the initial asking price. In competitive markets like Texas, we are seeing this happen more and more in today’s market. When you bid over the asking price, the seller is going to want “deal certainty.” In other words, they will want to make sure that you don’t back out of the contract if an appraisal comes in for less than what you bid.
In a normal real estate transaction, there are clauses in the contract that ensure that you can back out of a deal if an appraisal comes in for less than the price you included in the contract. When there are multiple bids, we’re seeing an increasing number of sellers demand that buyers “Waiver their Right To Terminate because of an Appraisal.”
By waiving your right to terminate means that you will need to bring the full amount of contract price to closing (even if the appraisal comes in low). For example:
Let’s say a house is appraised for 500k but you agree to pay $550k. If you waive the right to terminate you will have to purchase the house for $550 but Lenders (like us) will only issue a loan for the appraised value of 500k, minus your down payment. You are then responsible for bringing your down payment plus the difference between the appraised value and the contract price.
If you elect to waive your right to terminate because of an Appraisal, this may create a large financial exposure for you. If you don’t have the funds to cover the difference, then best case you will lose your earnest money or worst cast the seller will make a claim for specific performance to force you to pay the full contract amount.
If you do decide to go down this path, we strongly advise that you only agree to a “limited appraisal waiver” to protect yourself. This structure will mean that you are not obligated to bring more cash than you are able. Be sure to discuss this issue with your Realtor and make sure they structure your contract correctly.
It’s important that any Hurst Lending customer who is interested in our Dominate with a Cash Offer® program fully understands this scenario. If you decide to waive your right to terminate due to an appraisal, you can only draw against our Dominate with a Cash Offer® line of credit up to the amount of the appraisal minus your down payment. If you still find yourself confused, reach out to Hurst Lending directly.
Please make sure to share this article with your Realtor so they can help you structure your real estate contract correctly.
About Scott Bialek
In addition to being one of the founders of Hurst Lending, I am also an attorney and real estate investor. I have a portfolio of residential and commercial properties. I love helping investors build their portfolio and I am happy to help provide advice and suggestions on how to make money investing in real estate that go well beyond what a typical lender can provide. My philosophy is to take advantage of the current, still relatively low, interest rate environment to build a portfolio of high-quality real estate that will pay off over the long term.
Please feel free to contact me directly if I can help provide a loan for your next purchase or refinance, or even if you just want advice on how to get started or expand your real estate investing activities.
Scott E. Bialek
Co-Founder, Hurst Lending & Insurance
*Please note that this article is not intended to provide legal advice. You should contact your own attorney to understand the legal protections that are available to you when you purchase real estate.