The New Home Buying Tactic - Price Guarantees
Updated: Oct 5
With hopes of additional inventory fading, home buyers are ignoring appraised values and reaching into their pockets to close the deal.
As Sarah reviewed the multiple offers presented by her agent, her mouth made the shape of an inaudible ‘Wow’.
A few days earlier, her agent listed her 2br, 2 ba condo in the Atlanta suburbs for $130,000. With inventory being at record low levels, driving demand through the roof in real estate hotbeds throughout the country, she was prepared for a variety of strong offers, even expecting offers above list price. Not only were the offers above list - up to $15,000 above - but some also included a new wrinkle: Price Guarantees. Buyers were committing to pay the difference between their offer price and the appraised value of the property. In cash.
“I’d like to say that I’m surprised, but I’m not,” says Terrence Byrd, an Atlanta-based Realtor and founder of real-estate startup Pinpoinx.com. “I’ve seen buyers lose out on four, five, even six different properties before finally getting an accepted offer.” Waiving the appraisal contingency is just one of the latest trends used by savvy buyers and their agents to sweeten the deal.
With the horrors of the housing crisis still fresh on the minds of new home buyers, overpaying for a property seemed like an absurd idea only a few years ago. But unlike the market in the early 2000’s, when lenders were providing loans to seemingly anyone that could sign their name on the dotted line, this time around it’s the buyers that are taking on the risk with full acknowledgement.
“Since the buyer is paying the difference between the appraised value and market value with cash at closing, the mortgage isn’t technically underwater,” says Mr. Byrd. “Buyers are saying, Well, I can either rent for 6-12 months for “X” amount or I can use that money to buy this property. Either way, that cash will be sunk cost.” Waving the appraisal contingency is a tactic not to be taken lightly. “I’d definitely recommend discussing the pros and cons with your real estate agent,” he says. If this strategy isn’t right for you, or if you don’t have the necessary cash on hand to make this a viable option - here are a few other best practices that Mr. Byrd recommends:
You want to be able to find the property as soon as it hits the market. Pinpoinx, Byrd’s real estate search platform, uses AI and machine learning to recommend properties that buyers may miss by using basic search criteria utilized by traditional search engines. “Our algorithm can recommend a property 10 miles outside of your search criteria that may be perfect for you. And since the results are customized to your buyer profile, you save time by not having to sift through properties that don’t fit you.”
Once you find your ideal property, make your offer as soon as you can. Sellers and their agents remember the first few offers that come in. Pinpoinx allows clients to begin making an offer with their agent directly on the app. In a market as competitive as this one, being the first offer vs. fifth can be all the difference in winning or losing out on the dream property.
“My mantra is: Make your first offer your best offer,” says Byrd. “This way, you won’t get caught up in FOMO if you wind up in a multiple offer situation. If your offer is fair and firm, you can sleep at night knowing you gave it your best shot, win or lose.”