In the competitive world of real estate, it is quite common to come across bidding wars, especially in hot markets where demand surpasses supply. What is crucial for the broker is the ability to set the client apart from several offers. One effective strategy is leveraging hard money loans to give clients an edge. When brokers know how hard money financing works and how to use it strategically, they can help their clients win a number of bidding wars and close more deals sooner.
Why Bidding Wars Happen
Bidding wars arise when there’s more than one buyer in line for the same property, and this often leads to offers over and above the asking price. Contributing to the development of bidding wars is low housing inventory, high demand, and hot locations of properties. In such a case, it’s usually the seller who has the upper hand and, more often than not, would be keener on an offer that guarantees a smooth and swift closing.
Challenges That Buyers Go Through
Normally, clients who compete in a bidding war face several challenges:
- Financing Delays: Traditional mortgage approvals can take weeks and cause delays that may make the offer less attractive to a seller.
- Contingencies: An offer contingent on financing or appraisal isn’t as attractive to sellers, who like sure things.
- Lower Down Payments: Those buyers who put down lower down payments may be perceived as less reliable. These facts put your clients at a disadvantage in comparison with cash buyers or buyers with better terms.
How Hard Money Loans Give an Edge
Hard money loans can give them a leg up in that it offers quick, flexible financing that can make their offer more competitive. Here’s how:
- Speedy Approvals and Closings
With hard money lenders like Lending Bee, loan approval and funding can be as quick as 3 to 7 days. That is really fast. The fact that your clients can show offers with quick closing dates will be highly appealing to any seller who wants the deal done as quickly as possible.
Example: A seller who is considering two similar offers, when one promises to close in a week, while the other requires a 30-day closing due to traditional financing, will go with the one that closes quicker.
- Financing Certainty
Hard money loans decrease the risk of financing contingencies, since this type of loan is based on the property value and not by the credit score of the buyer. There’s less risk that it will fall through. This certainty can make a client’s offer stand out. - Increased Buying Power
With hard money loans, your clients may be in a position to offer higher purchase prices since they are going to have an easier time getting financing. Being able to pay more may mean the difference between winning and losing a house in a bidding war. - Flexible Terms
With hard money lenders, the loan terms can be tailored to meet the particular needs of the deal. This provides your client the flexibility in structuring their offers in the way that will attract the seller, whether through adjusting the down payment or removing certain contingencies.
Client Concerns
In hard money loans, there are some pain points with which the clients could be concerned, including higher interest rates or even shorter loan terms. The broker should try to show them the following pain points:
- Higher Interest Rates: This can be explained by drawing a comparison between the regular mortgages; hard money loans bear higher interest rates, although the loan is normally short-term in nature. It seeks to get the property as quickly as possible and then refinance into a conventional loan later.
- Smaller Loan Terms: Let them know that hard money loans are a bridge to allow the purchase. Once your client has secured the property, he or she can take his or her time to arrange long-term financing.
Broker Strategies
The following strategies will help your clients make better use of hard money loans:
- Educate Your Clients
Help your clients understand precisely how hard money loans work and the benefit they can be in a multiple-bidding situation. Explain costs and just where the loan fits within their financing structure. - Align with a Reliable Lender
Partner up with a good hard money lender, such as Lending Bee. Having a trusted source within the lending network smoothes out transactions and assures you when you need to recommend financing for a client. - Pre-Approval Letters Ready
Get a pre-approval letter from the hard money lender to include in your client’s offer. This proves to the seller financing is in place, and the deal will more than likely not fall through. - Make an Offer that Can Be Tailored
Because of the flexibility with hard money lending, you can make your offer match the seller’s needs. This would include a higher earnest money deposit, faster close of escrow date, or limited contingencies.
How Lending Bee Supports Brokers and Clients
At Lending Bee, speed and reliability are understood to be cardinal virtues in securing buying and selling outcomes. Here is how we support you to win the war:
- Fast Funding: We provide fast approval and funding to empower your clients to be competitive with their offer prices in the market.
- Flexible Terms: We tailor the loan terms according to the deal and structure the offers in a way that will impress the sellers.
- Crystal Clear Process: No hidden rate or fee; thus, your clients will know what to expect.
- Dedicated Support: From our team to brokers for a seamless financing process.
Success Stories
Consider a broker whose client was after one of the hottest properties in town. Conventional financing would have made his closing slower, hence less attractive. A hard money loan provided by Lending Bee allowed the client to give the seller a 7-day closing with no financing contingencies. The seller chose them over numerous other offers, some even higher, because of the speed and surety.
Overcoming Common Objections
Objection: “I’m concerned with the higher interest rates associated with hard money loans.”
Response: While it is true that hard money loans have higher interest rates, they are short-term answers to quickly acquire the property. We can help refinance into a traditional mortgage, with much lower rates, after closing. The upfront cost is offset by the benefit of winning the property.
Objection: “I’ve never used a hard money loan before; it sounds risky.”
Response: Hard money loans are nothing out of the ordinary for investors or buyers in competitive markets. They offer the flexibility and speed that’s needed to lock up properties where timing is of the essence. We work with reputable lenders like Lending Bee to ensure this process is transparent and reliable.
In a market of bid wars, brokers need every tool they can get to ensure their clients win the day. Hard money loans provide strategic advantages through quick closings, financing certainty, and flexible terms. With a trusted lender like Lending Bee, you can give your clients the tools they need to win competitive bids and lock down the property.
If you are a broker looking to give your clients an edge in the market, consider a hard money loan. Consider reaching out to Lending Bee to learn more about how we at Lending Bee can help you and your clients succeed in winning bidding wars and closing deals faster.