On Day 11 of the house search, when Holly and I first heard about the legendary three zero offer, we thought it sounded crazy.
On day 93, we decided it was necessary.
Sure, a triple zero on paper might sound crazy, but in a hot housing market where each house gets an average of four offers, filing a triple zero gets you serious edge.
Heck, our salesperson chose our triple zero instead six money offers. That’s how strong they are.
So what is the offer “three zeros” on the house? Why do salespeople love triple zeros, sometimes even more than a cash buyer? Finally, what makes triple zero so risky – but worth it under the right circumstances?
Let’s take a look at triple zero offers and how they can help you win the house.
What is the offer “three zeros” on the house?
The Three Zero offer includes the following:
- Zero due diligence.
- Zero contingency funding.
- Zero contingency score.
I’ll tell you what these terms mean and why sellers love them.
What does it take to make a three-zero offer?
To set expectations, “three zero” sentences have a cool premise. But if you have the right ingredients, the vendors will love what you make. Here’s what you need:
- Regular loan. Government-backed loans won’t let you make triple zeros.
- 20% down. Three zeros requires your lender to inherit some risk, so they’ll want to see you have skin in the game.
- local lender. Major banks or national lenders will not guarantee you up front, which is an important component of triple zeros.
- Rejection of evaluation. Make sure your lender is willing to waive the appraisal under certain conditions.
- An agent who understands this. Finally, the “three zero” offer is a good test of the real estate agent’s skill and experience. If they don’t understand any of these less common offer tactics (or why they’re needed in today’s market), it might be time to consider working with a more experienced agent who does.
Now that we have the prerequisites, let’s discuss the big three triple zero proposals.
one. Zero due diligence
When you make an offer for a house, the two most important terms in the contract will be yours. due diligence and yours deposit
- due diligence this is the period of time during which you, the home buyer, can withdraw from the contract for any reason. Due diligence begins as soon as the home seller accepts your offer, and under normal market circumstances, buyers typically require 10 to 14 days for due diligence. Buyers also plan to evaluate and inspect during due diligence. Thus, the buyer can negotiate if the valuation is low, or simply walk away from the deal if the inspector finds something terrible (mold, leaks, a wendigo living in the attic).
- Deposit it’s a big pile of cash that you put in escrow and agree to give back to the seller if you pull it out after the due diligence is complete. In most offers, the deposit is usually 1% of the offer amount (i.e. $4,000 for a $400,000 house).
Now some homebuyers think that increasing their down payment alone make them more attractive to the seller. But the sellers in this market won’t give even two clues if you deposit 1% or 10%, as you still reserve the right to return it during due diligence.
That’s why sellers are more likely to see zero due diligence than a big down payment; the former sounds much more single-minded and also ensures they get the money if you say no.
Now if you offer zero due diligence as well as higher deposit?
Probably not, and here’s why:
Risks of Conducting Zero Due Diligence
When you remove the due diligence, you are essentially agreeing to buy the home before the appraisal or inspection.
Of course, you can still opt out before closing, but you will lose your deposit.
That’s why resetting due diligence is extremely risky for homes older than five years old, which are more likely to require costly hidden repairs. An inspector may find that a home needs $15,000 worth of roofing and plumbing work, leaving you with a difficult choice:
Grit your teeth and pay for repairs?
Back off and lose your $4,000 deposit?
So zeroing due diligence – and suggesting triple zeros in general – is safer in a new home, where there’s less chance of a Wendigo hiding in the attic.
2. Zero contingency funding
BUT contingency fundingalso known as a mortgage contingency, is a closing period during which a buyer attempts to secure their mortgage.
See, you’ve probably already heard of these two terms:
- Pre-qualification it’s just a quick self-assessment of your finances as well as a soft credit check to see how much you have at home power be able to afford.
- Pre-approval when you let your lender dig into your financial statements (tax returns, 60-day bank statements, etc.) to determine what loan amount they power approve you for.
But there’s also a third step—super pre-approval, if you will—that lets sellers know you’re in the lap of a bee:
- Pre-underwriting it’s when your lender spends hours and sometimes days scrutinizing your finances to a whole new level. They will ask for pay stubs, check your income and employment, ask tricky questions, all to make sure you can pay off your loan.
To be clear, underwriting always takes place before the mortgage loan is approved. The only difference here is that you do it before you make offers.
This allows you to forego the financial contingencies that sellers love to see. This shows that most of the paperwork is already in place, but more importantly, the deal is less likely to fall through because your lender decides not to finance you.
Risks of zero contingency funding
When you exclude financial contingencies from your home offer, you’re betting on the fact (hehe) that your financial situation won’t change much between the day you pre-sign and the day you close.
But unless an unexpected $30,000 bill comes up during the home buying process, there is little risk if you underwrite early.
However, it is worth noting that not all lenders will pre-guarantee you. If you find one that doesn’t, I highly encourage you to look around so you can maintain that key competitive advantage!
3. Zero contingency score
Finally, we have a contingency score of zero.
An grade this is when an unbiased third-party professional comes in at closing time and evaluates the home’s true market value.
Estimated value serves two purposes:
- To convince the lender that they are not lending you $400,000 to buy a $300,000 house because the house will serve as collateral for the loan.
- To give the buyer some negotiating power. If you’re offering $400,000 and the valuation is $350,000, you can tell the seller, “We’ll pay $350,000 or we’ll lose.”
#2 why sellers usually hate appraisals.
- A low estimate gives buyers a better price or a reason to refuse.
- A high score just shows that the buyer got a good deal.
So when you refuse evaluation as a buyer, you not only speed up closing times; you also guarantee the seller that you will buy the house no matter what.
Cherry on top? You save between $400 and $750 on appraisals.
Risk of zero contingency score
The risk of not valuing is that you will buy a house at an inflated price.
But that risk is somewhat reduced, as you still need to get your lender’s approval to opt out of the appraisal. And if your lender refuses the appraisal, it’s their blessing that they think it’s worth what you’re paying based on their own appraisal rates.
Not valuing is another reason why small, vibrant local lenders may be a better option than large, established lenders; only the first will consider refusing the evaluation.
The purchaser’s waiver of due diligence, contingency funding, and valuation may seem excessive. But extraordinary times call for extraordinary measures.
If it suits your risk tolerance and you meet the prerequisites, a triple zero offer can maximize your chances over cash offers and help win you a new home.
Featured Image: Shchus/Shutterstock.com