real estate

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: When making an offer to buy a home and the listing agent says that there is another bid in for the same home, can I get proof of that bid?

Answer: The short answer is no. There’s no way to get absolute proof of another offer (except when an Escalation Addendum is used, which I’ll address later), but there are strategies to help determine how legitimate the claim is.

Ask Questions

There’s a myth that agents aren’t allowed to disclose the details of an offer to another agent when, in fact, it’s perfectly legal unless the seller declines it in the listing agreement (rare). When I’m told about another offer, my first reaction is to ask questions about the competing offer’s terms, how/when the seller will make a decision, and anything else that’s relevant to the offer. In most cases, I’m able to advise my client with a high level of confidence whether or not the other offer is legitimate and the appropriate response.

Situational Awareness

Here are a few factors you can look at to determine the likelihood of multiple offers:

• Days on Market: The highest chance for multiple offers is on/after the first weekend a property is listed, with the likelihood decreasing with each week that passes, and significantly after the first 3-4 weeks.
• Price: If you think the list price seems below market price, you’re probably not the only one. In some cases, agents price a home to encourage multiple offers. If the deal seems too good to be true, be prepared to compete.
• Rarity: The more rare the home is, the higher the likelihood of multiple offers. A 1BR/1BA 750sqft condo in Ballston for $425,000 is probably not going to generate competing offers, but a Lyon Village colonial with wrap-around porch, open floor plan, and 20,000 square foot flat lawn w/ privacy fence probably has a few buyers who have been waiting for 6-12 months for a home like that to hit the market.

Of course, multiple offers can come at anytime. I once had a listing that had one offer in over a year and then ended up with two offers on a random Monday. I couldn’t explain it and it was certainly an interesting conversation with the two agents who submitted offers.

Risky Business

Made up offers are a lot less common than you’d imagine because most agents understand how much riskier it is to negotiate using a fabricated offer instead of negotiating through strong counter offers and honest negotiations. The risk comes from the number of buyers who have no interest in getting involved in a competitive offer situation and will withdraw or stop negotiating when they find out about a competing offer. The risk of losing one legitimate offer to a fake one keeps most agents honest.

Escalation Addenda Work

If you doubt the merits of a competing offer, but want to keep yourself in contention if the offer is legitimate, an Escalation Addendum may be the best way to proceed. If the seller chooses to ratify your offer using an escalated sales price through the Escalation Addendum, they must provide “a complete copy of [the] other offer used to justify the escalated sales price.” For a more detailed explanation of Escalation Addenda, see my previous article for ARLnow.

Have you ever sniffed out a fabricated offer during the negotiation process? Have you ever incorrectly assumed an offer was fake and lost a home you really wanted?

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: I haven’t accumulated enough savings for a 20% down payment, but want to take advantage of low interest rates and stop paying rent. I’ve been told that some of the lower down payment mortgage options include Mortgage Insurance, but don’t fully understand the concept and whether it’s the right decision. Can you provide some insight and explain the pros/cons?

I’ve received a few questions over the past month about mortgage insurance and decided to enlist the expertise of a veteran mortgage advisor, Troy Toureau of McLean Mortgage for this week’s column.

What is mortgage insurance?

Mortgage insurance is offered by either the government or private insurance companies to enable lenders to offer smaller down payments on loans. Before mortgage insurance existed, many had to pay a minimum of 20% down to purchase a home, which made homeownership unaffordable for many Americans. Mortgage insurance covers lenders for losses up to a certain amount if a borrower defaults on their mortgage.

There are two types of mortgage insurance available:

3. FHA mortgage insurance: FHA is a government program, which requires a down payment of as little as 3.5% of the sales price, and mortgage insurance is required on FHA mortgages, regardless of the amount of down payment.
4. Conventional mortgage insurance: Conventional mortgages are home loans that are not insured or guaranteed by the government, as in the case of the FHA mortgage example. Many conventional loans are sold to Fannie Mae or Freddie Mac and thus follow these entities “conforming” guidelines.

Conventional or private mortgage insurance enables lenders to offer conventional loans with a minimum down payment of 3.0% to 5.0%. Most 3.0% down conventional mortgages are restricted to low-to-moderate income borrowers.

What is the cost of mortgage insurance?

The cost of mortgage insurance will vary greatly, depending upon several factors:

1. The mortgage insurance alternative selected
2. The amount of the down payment
3. The type of the mortgage such as a 30-year or 15-year loan
4. The qualifications of the borrower, especially the credit score
5. Whether the mortgage is an FHA or conventional loan

In addition, depending upon the alternative selected, the cost of mortgage insurance can be an upfront fee, an additional monthly payment, or financed into the loan amount or interest rate. Or the cost may be represented by some combination of these alternatives.

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