Risks of a Firm Offer

Often people are in multiple offer situations and opt to have a clean offer that has no conditions. This is never advisable, but often in a competitive market, the only way forward. In already having a pre-approval, you have been vetted by one or more lenders, however, the property has not been vetted. Below are some issues that could affect a lender’s willingness to lend on a particular property. Please note that this list is not exhaustive. There could be other issues impacting a lender’s decision.

  • Water damage, leaks in foundation
  • Roof in poor condition
  • Knob & tube or aluminium wiring
  • Kitec plumbing
  • Insulbrick
  • Former use as a grow-op, meth lab, etc.
  • UFFI
  • Asbestos
  • Low square footage
  • Locks on bedrooms (suggesting home is/will be used as a rooming house)
  • Acreage
  • Previous use as a short term rental such as Airbnb or HomeAway, etc.
  • Below average condition
  • Surrounding adverse influences (located downhill from a gas station, near a half-way house, etc.)
  • Murder or suicide in the home
  • Status certificate with low reserve funds, deferred maintenance, unresolved lawsuits, special assessments or increasing fees
  • Inability to arrange adequate home insurance
  • Zoning other than residential
  • Multiple homes on one lot

Things such as former use as grow-op, meth lab, murder/suicide do need to be disclosed by the seller, so that shouldn’t be an issue. If there are no adverse influences, it comes down to whether the appraisal value supports the purchase price.

Lenders lend based on the LOWER of appraised value or purchase price. If the appraisal is lower than the actual purchase price, you may be required to find additional monies to increase your downpayment.

If you’re confident that you’re not overpaying and that there aren’t any adverse influences, then you may want to consider a firm offer keeping in mind the associated risk and whether or not you can find additional funds in the event the appraisal is an issue. In working with a broker, one company may have issues with a given property, while another may not. You may find yourself with limited lenders and higher rates should there be an issue with the appraisal or the property itself. Only you can decide what your risk tolerance is.