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Is It Better To Be Lucky Than Good?

by Justin McHood

in Justin McHood,Mortgage Related Topics

So you think you want to buy a house that has multiple offers on it?

What I am about to suggest is called The Better To Be Lucky Than Good Plan and it’s success can largely depend on what your connection with karma is with the Gods in Charge of Decisions on Bank Owned Properties.

Step One

Once you have found a house and you realize that there is currently multiple offers in on it – maybe even at least one of them is for cash, it is time to get creative. In this case, creative is known as something called an escalation clause. The escalation clause can be worded in a number of different ways, but the essence of it is “buyer agrees to pay X% or X$ over the next highest offer.”

Step Two

Being creative can be fun, but unless you are also smart and creative, it could backfire on you. So now that you have been creative, you can protect yourself by being smart. Being smart in this case requires that in addition to your escalation clause, you also use a “subject to appraisal” clause such as this one The Phoenix Real Estate Guy stated in the comments from a post I wrote last week:

Appraisal Contingency: Buyer’s obligation to complete this sale is contingent upon an appraisal of the Premises by an appraiser acceptable to lender for at least the sales price. If the Premises fails to appraise for the sales price, Buyer has five (5) days after notice of the appraised value to cancel this Contract and receive a refund of the Earnest Money or the appraisal contingency shall be waived.

Once you have submitted your offer that is both creative and smart, it is time to sit back and let the fun begin. From what I can tell, the people who work for the Gods in Charge of Decisions on Bank Owned Properties are seldom able to turn one of these offers with an escalation clause in it down. I am sure it happens, but I just don’t see it happen very much.

Step Three

Once the offer has been accepted by the people who work for the Gods in Charge of Decisions on Bank Owned Properties, it is time to order the appraisal. Due to HVCC laws, appraisals today can be tricky and usually drive people nuts… but in this case, don’t let it drive you nuts – if the Better To Be Lucky Than Good Plan works out, you are about to save some money and be able to buy the home you want.

Step Four

If my math is correct so far, once you get the appraisal back, you will quickly realize that as a result of you being creative, you currently have an offer in that is possibly tens of thousands of dollars over the appraised value of the home.

Good thing you were also smart. Now is the time when you go back to the person who works for the Gods in Charge of Decisions on Bank Owned Properties and ask them which one of these three choices they want to pick:

  1. Cancel the contract because the property did not appraise for the sales price
  2. Get a different appraisal done with the seller paying for it
  3. Negotiate with the seller to lower the sales price to the appraised value

How do you tell if you are one of those people who think it might be better to be lucky than good?

The person who works for the Gods in Charge of Decisions on Bank Owned Properties chooses door number three from the choices above and you end up with the house you wanted at the appraised value.

It might be easier than you think to be lucky… especially if the short sale department happens to be part of the “Retard Division“.

Other Recent Multiple Offer Thoughts:

Escalation Clauses: Bad or Good?

Multiple Offers and “Winning” The Bidding War

Disclaimer: I am not a Realtor but I get to watch them work every day and most days it is more fun than not. Be sure to consult with a licensed Realtor before trying any of this at home.

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The Top 10 Reasons Somone Shouldn’t Use ZMM To Shop For A Mortgage

If you found this blog, chances are that you are a consumer who is looking for more information about a mortgage. Maybe even more specifically, you are searching for specific information about how to get the best deal on your mortgage. So I thought I would take the time to list out the Top 10 Reasons Someone Shouldn’t Use Zillow’s Mortgage Marketplace to Shop for a Mortgage . Number Ten You much prefer filling out a form on the Internet somewhere that looks like this… because you wonder what will happen if you do. Number Nine When you fill out a form that looks like number ten, you also want to give your personal information – just in case someone needs it. Number Eight You sometimes get lonely. You like to get phone calls. From lots of different people. Forget it if they want to talk about your mortgage – you want to tell them all about how your garden is doing. You know that by filling out a form, you will soon have lots of different people to talk to from all over the country. And they sound like such nice people when they call. Number Seven Your Realtor’s brother seems like he is so smart about mortgages. You feel lucky that you found the World’s Best Realtor who has a brother who is the World’s Best Loan Officer on the back of the shopping cart at Safeway. Number Six You really don’t have all that much time to fill out any forms on the internet. Can’t you just sign a form or two and be done with it? Number Five Your sister said that she found her loan officer on MySpace and he was so cute – he even gave her a ride in his BMW to the title company. Number Four You can’t find any loan officers on Zillow who are offering you any cash-back-at-closing when you buy your house and you really need to find someone who can offer “creative financing”. Number Three Your mom used a loan officer that she liked before – and he said that he could “help you out” even though he has a side job now stocking shelves at Home Depot. Number Two You like the fact that you can go to the Realtor’s office and stop by the Loan Officer’s office right there in the Real Estate Office. Having them together makes it so easy . And finally, the Number One Reason Someone Shouldn’t Use Zillow’s Mortgage Marketplace to Shop for a Mortgage? You feel sorry for your brother. Who also happens to be a mortgage broker.

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The Downside To Leverage

One of the greatest things about Twitter is it lets you peer into the minds of some of the smartest people in the world – all without them really knowing that you are listening. Just follow a few smart people and soon you will be amazed at the amount of wisdom they can share in 140 characters or less. Consider this insight shared with his followers from Zillow’s COO : After I looked up the word pernicious , I couldn’t help but think “He is right – many of the foreclosures – especially the ones that could be considered strategic can be traced right back to the degree of leverage being used by people to finance their homes.” Leverage: It Cuts Both Ways Say for a moment that you put down 20% when you bought your home 2 years ago. Even though 20% would have been considered a healthy down payment 2 years ago, that still means that you are able to live in a place that costs 4-5 times as much as you have into it in cash. Then say with the current economic problems, you have a hiccup in your income (job loss, decreased bonus, demotion, less business income, etc.) and you are unable to continue to make the monthly payment on your current mortgage. If home values in your area have went down 10%? You can still sell your home for more than you paid, and move into a cheaper living situation – either buy a smaller home or rent a place that is less on a monthly basis. But when home values have went down 50% in your area, you then have some decisions to make, and those are the tough decisions that I see homeowners wrestling with every day. Because I live in one of the sand states where foreclosures are rampant, I speak with people all the time who are 50% (or more) under water from when they bought their home just a few years ago. What is alarming about these conversations is that there really is not a solution in place to the problem of having severe negative equity in their property and a hiccup in their income – and so I am left with giving no real advice, but rather just explaining options. And the option list is rather short: Continue making your payments Short sell your house Attempt to get a loan modification that will most likely still leave you with 50% (or more) negative equity Foreclosure What Should You Do If You Have 50% Negative Equity And A Hiccup In Your Income? The short answer: If you can’t continue to do #1 (make your payments) and you want to live in the home, try #3 (loan modification) with your lender but be ready to do #2 (short sell your house) to hopefully avoid #4 (foreclosure). Leverage. I can’t think of a better word than pernicious , when values go down.

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