After (reading?) my previous post, a bank agent suggested I get a “buyer-ready” mortgage commitment from the bank. This, they said, would make me “compete with cash buyers”. Naturally, I was suspicious, but they insisted that my offer would be “indistinguishable” from a cash offer, from the point of view of the seller. What can I tell you? I fell for the cs terminology.
I spent months fishing out, producing, and emailing back-and-forth documents. I found a little strange that my being tenured did not affect their evaluation of my financial stability the least. I thought I could provide a small but stable cash flow that they could reliably bleed white over the course of my remaining lifetime. The only logical explanation I have is that they benefit if I default. Instead, they were very curious about exactly why I wrote multiple checks for a few thousand dollars that were cashed in California?
The barrage of bureaucracy got to the point that I had to switch lender, in favor of someone who was less demanding in that department. At long last, I got back into the market, however only to find out that the document I had chased so hard was almost completely worthless. To explain in one word: appraisal.
This buyer-ready commitment is still contingent on appraisal. This means that after the offer is accepted, the bank still has to go there and see the property, and decide if it is valued right. Only in that case I get the mortgage. That means that the seller can’t be sure I have the dough, so why should they bother with me? Indeed, they don’t. The only slight advantage that this document provides is a little saving in time over someone who has to get a mortgage from scratch. But that has nothing to do with competing against cash buyers.
For the benefit of posterity, let me list the three main contingencies related to buying real-estate the old way.
MORTGAGE: This is whether the bank thinks that you (the buyer) are financially stable enough to be given a loan. This is the check that you can preprocess with the “buyer-ready commitment.”
APPRAISAL: As mentioned above, this is whether the bank thinks that the *property* is actually worth the money they put down. This can’t be done until after an offer is accepted, requires one-two appraisers, and guess who pays for them. In today’s crazy market when properties are sold way over asking price, you can’t be sure at all that the appraiser will say the house is worth what you pay for. At least, I can’t. And if they don’t, you are supposed to pay for the difference, which most likely you don’t have. For example, putting down all your savings of $200k, you can get a loan of $800k, for a purchase price of $1M. The house which you saw listed for $800k is sold for $1M, but the appraiser says the right price is $900k. Either you find another $100k quick, or you lose the 5% you gave at the purchase and sale (and the deal is over). Appraisal should not be confused with assessment, which is how much the town thinks the house is worth for tax purposes.
INSPECTION: OK, you can forget this. Moreover, from my experience a general inspection is nearly useless. If you are paying $1M for a house, why do you care if the boiler needs to be updated? Anything which interests me, like does this house have lead/asbestos/mold/structural damage/pest etc. the inspector can’t answer on the spot. For each of those things you need a different specialist, which you can’t get in time, and who can’t even do the job until the house is yours (because for example they can’t collect samples).
The running joke in the area where I am looking continues to be to list houses ridiculously below market price, and then have inexperienced families stress over their offers just to see them wiped out by yet another $1M cash. There are reasons slightly more subtle than my poverty why I think this is outrageous. Today’s house-buying protocol does nothing but force poor people into gambling desperate offers which could result in their financial ruin. Why don’t we also legalize Russian Roulette then? I think today’s protocol should be made illegal. That is, we should find a way so that someone with a mortgage has a fair shot at buying a house. There are several ways in which this could be realized. For example, the offers should not reveal the appraisal contingency. The fact that the buyer pays for the appraisal prevents them from making baseless offers. And the millionaires who offered less can wait one day for the appraisal to come back.
Nevertheless, after a 3-year ordeal, I am now a homeowner. Here’s how my offer went. First, it so happens that I was sick on that fateful Thursday. At around noon, a new listing pops up. The open house is scheduled for the week-end, so I might just wait for that, right? I instantly call and schedule a showing for the afternoon. At around 6PM, with effort I manage to get to the house. As usual, there are already 5 other interested parties, and the broker is busy scheduling more visits over the phone. At 9PM we put in an offer with a 16-hour deadline. The offer is completely “clean:” here’s the money, no contingencies, no questions asked. Moreover, it is over asking, though not by very much. My wife has not seen the property.
I then go to a pharmacy to buy medications. There I meet someone who was checking out the house at the same time as me! They say the house needs $.5M in works, which I later take as a move to kick me out of the competition. They also ask me if I’d be interested in putting in an offer.
To my astonishment, our offer is accepted on Friday morning. For once, I was the annoying person who took the property out of the market before the open house! There is however a small caveat: you wouldn’t think that the above gets you a house where you can actually live, would you?