10 Tactics To Help Buyers Overcome Affordability Challenges

The single biggest challenge for many buyers today is affordability. A dearth of inventory has flipped the script once again in the seller’s favor and appears to be driving price increases even in markets that had seen price drops earlier this year.

Still, agents are helping clients prevail with a combination of strategies tied to mortgage products and seller incentives, says Elias Medina, owner and associate broker of Medina Real Estate Inc. with Keller Williams Real Estate in Albuquerque, New Mexico.

Medina — a Zillow Premier Agent, broker and appraiser with more than 20 years' experience — and one of his newer associate brokers, Linda Rasheed, offered tips they’ve used to help their clients win the deal. Every tactic comes with some degree of risk, they say, and it’s critical that buyers understand tradeoffs and consequences and how the tactics fit into the bigger picture.

1) Bump up the offer in exchange for a lower, seller-subsidized mortgage rate

This tactic is becoming less effective as the sellers’ market hardens, Medina says, but he used it recently to get a client into a home.

Here’s what he did:

His client offered about $8,000 over list price and asked the seller to credit that money back at closing so the buyer could use it to purchase a lower mortgage interest rate from their lender. In effect, the buyer increased the loan amount so they didn’t have to pay out-of-pocket to get a lower rate. The result: a lower monthly payment and the ability to spread the cost of the buydown over the life of the loan.

“There's a risk if it doesn’t appraise at the higher amount,’’ Medina says. “But if you can use that money for a 2/1 buydown, or just buy the rate down by a certain percentage point, you can lower the monthly payment.”

The 2/1 buydown temporarily lowers the mortgage payment for two years while buying points lowers payments over the life of the loan.

Medina says his client was able to buy down the mortgage rate by 1.5 percentage points, putting them in a better position on their mortgage payments than if they’d paid the listing price without the lower interest rate.

2) Offer a partial appraisal waiver

Instead of waiving an appraisal altogether, Medina says some clients agree to pay a specified amount over the negotiated sales price if there’s a gap between the asking price and the appraised value. That way, they can still compete against other offers but not to the point of putting themselves at risk of having to come to the table with a big check — or losing their earnest money.

3) Pay a “time off market” fee instead of earnest money

Unlike earnest money, which is tied to contingencies, a “time off market” fee or TOM is the sellers’ to keep regardless of whether the deal closes.

“It’s paid to them for accepting the buyers’ offer,’’ Medina says. “It’s a bold strategy and it works really well. If the buyer doesn’t close, they still have to pay that money.”

Medina says the size of the TOM fee depends on the price of the house, but in his experience, it has ranged from $500 to $5,000 plus.

“The buyer has to understand what a TOM fee is and be 100% comfortable with it and be committed to that house or willing to lose that TOM fee in the event they don’t close on it.”

Medina says a TOM fee can be more attractive to a seller than an offer over the asking price, especially if the offer would exceed what the house is likely to appraise for.

For instance, Medina said he negotiated a deal where a competing offer was about $10,000 over the listing price. Rather than match that offer, he successfully made a case that the house was accurately priced based on the comps, and that an offer above that price would inevitably result in an appraisal gap that could jeopardize the deal.

“I wrote a list offer plus a $5,000 TOM fee to not have to cover an appraisal gap,” Medina says. He called it “a very aggressive tactic” because the buyer is still paying a premium and assuming the risk of the deal not closing, but it’s more attractive to the seller, and ultimately cheaper for the buyer than making an offer $10,000 over asking.

4) Allow the seller to occupy the house for a short time after the sale

Most sellers (71%) are also buying another home, so giving them some breathing room to move after they close can be worth more to them than a few thousand dollars. Some clients will offer to let the seller stay rent-free while others charge a nominal fee, he says.

Extended occupancy requires good communication with the sellers’ broker, who can provide a better picture of what the seller might value, he says.

It’s important to note that extended occupancy after the date of sale places the buyer and seller in a landlord-tenant relationship. Buyers should consult with a local attorney to understand their duties as a landlord and the associated risks.

5) Ask for a lender credit to buy down the mortgage rate

This is where relationships are especially important, says Medina. Working closely with lender partners can allow buyers to make a better offer in neck-in-neck situations, he says.

“We have lenders who work with us to give a lender credit to buy down the interest rate,’’ he says. “It’s a team effort, and a win for everybody.

Lender credits typically come at closing in exchange for a lower interest rate. In the current environment, however, it’s in everyone’s interest to give a little to get the deal done, Medina says. That’s true for loan officers, as well, and he says he’s been able to get credits for clients from favored lenders without them paying a fee.

6) Limit requests to fix problems uncovered during inspections

A thorough inspection could find a myriad of problems, ranging from non-functioning smoke alarms to leaks in the roof. Rasheed says she advises her clients to focus only on items that are costly to repair. The seller is more likely to adjust the price downward for a few items than a laundry list that feels like you’re nickel and diming them on the price, she says.

7) Keep track of inventory that lends itself to shared living spaces

Over the past five to seven years, Medina says he’s seen a significant increase in buyers who are sharing homes with friends or multi-generations of family as a way to cut down on costs.

“It’s not necessarily because they want to, but because they have to due to affordability issues,’’ he says.

He says he keeps track of homes that have two primary suites, accessory dwelling units or guest houses or sufficient room on the property to construct one. He also keeps track of properties that have income potential to keep up with what he says are constant requests for such properties.

8) Look for homes that have been on the market for a while

If a home doesn’t get snapped up right away, or returns to the market after it’s gone pending, it often gets a stigma attached to it, Rasheed says. The house could be perfectly fine and the deal could have fallen through due to financing issues, but buyers and agents may assume it’s because there's something wrong with the home.

Homes that have been sitting a while are more likely to result in seller concessions, she says. 

9) Show your clients new construction

Rasheed says she is finding success with new construction homes. There is less competition, no bidding wars and clients get a brand new home, she says.

“A lot of builders offer great incentives with in-house financing,’’ she says. “I recently saw one that had 4.99%” interest on financing.

Rasheed also says that builders might hold firm on the asking price so as not to affect comps on the rest of the development, but they may be more willing to negotiate around concessions and financing.

10) Communication and relationships matter more than ever

Offers frequently require multiple tactics, and every situation is different, which is why Medina repeatedly cites communication as critical to agents’ success. 

Medina says agents communicate 10 times as much as they did a decade ago. Multiple offer situations — which are more common now — make constant communication with clients, lenders, other brokers essential to getting a deal done.

“We’ve had to adjust offers three, four, five times before they’re actually presented,’’ he says. “You need to have brokers who are willing to take your calls. That allows us to at least put clients in position to get offers accepted.”

Building and maintaining relationships with those connections is critical, he says, especially when even small adjustments to an offer can help seal a deal. The people you’re dealing with need to trust you and believe your word, he says, and that comes down to reputation.