Here’s a little trip down memory lane about buying property in San Francisco over the last dozen years or so. Not just buying property, but HOW property is bought — i.e., with financing, with or without financing contingencies, or cash buyers.
2002: Mortgage broker: “No down payment, bad credit, but you’ve got a job? You can get a loan! Or two!”
2005: Buyer: “Man, these properties are getting expensive and the market is competitive. I’m glad it’s so easy to get a loan that I don’t need a financing contingency!”
2007: Seller: “I know it’s easy for buyers to get a loan, so I’m not worried about accepting an offer with a loan.”
2009: Buyer’s agent: “My buyer client won’t remove his loan contingency until his loan funds.”
2010: Seller’s agent: “Take the all-cash offer. That way we don’t need to worry about the buyer not being able to get a loan.”
2012: Mortgage broker: “This is a solid preapproval. Banks have tightened their underwriting guidelines and if a buyer is preapproved, he or she will get the loan (unless there’s something drastically wrong with the property or it doesn’t appraise).”
2013: Buyer’s agent: “My buyer has gone through the complete underwriting process and only needs to have the contract and title report approved. There are no issues with this property so please don’t toss our offer in favor of the cash buyer offer!”
2014: Seller’s agent: “I know your client wrote the highest offer, but we took one that was lower because it was an all cash buyer.”
Back in the 2003-2007 timeframe, it was easy — ridiculously so — to get a loan. So easy, in fact, that even buyers who didn’t have a down payment were able to write offers with no loan contingency. At the same time, there wasn’t a whole lot of cash in the market, so the playing field was at least somewhat level: if a property received seven offers and all had financing, the relative strength of the offers was determined by who had a bigger down payment, who had one loan vs. two, and who had a contingency (or not).
Fast forward to 2008, when everyone in the whole world said a collective, “OH S&%), what just happened?” and the economy imploded. Lenders tightened up their underwriting guidelines and anyone with less-than-stellar financial details was out of luck. No loan for you!
That meant that sellers started to care a lot more about the financial picture of their potential buyers, which translated to anyone with less than 20% down being moved to the back of the line or kicked out of the line completely. Buyers with the biggest down payments came out on top, and of course, a cash buyer would trump all.
Fast forward another couple of years. The stock market was on an upward trajectory, property values were starting to rebound, tech companies were expanding…and the market became flush with cash. At the same time, though, lenders were starting to exhale and loosen up their guidelines just a little bit, and there was no longer a risk that the lender would pull the funding at the last minute before closing (as had happened in 2008-2009).
Which brings us to 2014, a year in which we are seeing a deluge of cash into the real estate market — and a time when some agents look at a 2014 buyer with 2009 eyes. Say a property gets five offers — one all cash and four with financing. Providing those buyers are preapproved with reputable lenders who have sent the buyers’ files through underwriting, there is very little risk that their loan won’t be approved. It’s not a 100% guarantee, but it’s solid enough that we advise our sellers to evaluate the whole offer, not just if it’s a cash offer or not.
What does this all mean? It means that agents should take off their 2009 glasses and stop penalizing buyers who need a loan to buy a house. Yes, they should do their due diligence about a potential buyer before advising a seller to accept an offer, but they should also match their advice with the lending situation as it is *today,* not as it was in 2009.