On day 11 of the home search, when Holly and I first heard of the legendary “triple zero” offer, we thought it sounded nuts.
On day 93, we determined it was necessary.
Sure, a triple zero may sound crazy on paper — but in a scalding hot housing market where every house receives an average of four offers, submitting a triple zero gives you a serious edge.
Heck, our seller chose our triple zero over six cash offers. That’s how powerful they are.
So what is a triple zero offer on a home? Why do sellers 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 investigate triple zero offers, and how they can help win you a home.
What is a triple zero offer on a house?
A triple zero offer includes the following:
- Zero due diligence.
- Zero financing contingency.
- Zero appraisal contingency.
I’ll walk you through what these terms mean and why sellers love them.
What’s required to make a triple zero offer?
To set expectations, triple zero offers have steep prerequisites. But if you have the necessary ingredients, sellers will love what you cook up. Here’s what you need:
- A conventional loan. Government-backed loans won’t let you do triple zeros.
- 20% down. Triple zeros require your lender to inherit some risk, so they’ll want to see that you have some skin in the game.
- A local lender. Big banks or national lenders won’t pre-underwrite you, which is an essential component of triple zeros
- An appraisal waiver. Ensure that your lender is willing to waive appraisals under certain conditions.
- An agent who understands this stuff. Finally, a triple zero offer is a good test of a real estate agent’s skill and expertise. If they don’t understand any of these less common offer tactics (or why they’re necessary in today’s market), it might be time to consider working with a more experienced agent who does.
Now that we have the prerequisites out of the way, let’s discuss the big trifecta of a triple zero offer.
1. Zero due diligence
When you make an offer on a home, two of the most important terms in the contract will be your due diligence and your earnest money
- Due diligence is a period of time during which you, the home buyer, can back out of the contract for any reason. Due diligence starts as soon as the home seller accepts your offer, and under normal market circumstances, buyers typically request between 10 and 14 days of due diligence. Buyers also schedule the appraisal and the inspection during due diligence. That way, the buyer can negotiate if the appraisal comes back low — or simply flee from the deal if the inspector finds something terrible (mold, leaks, a Wendigo living in the attic).
- Earnest money is a big pile of cash that you put in escrow and pledge to give the seller if you pull out after due diligence ends. In most offers, earnest is typically 1% of the offer amount (i.e., $4,000 on a $400,000 home).
Now, some home buyers think that increasing their earnest money alone will make them more attractive to a seller. But sellers in this market won’t give two hoots if you put down 1% or 10% earnest, since you’re still reserving the right to yank it back during due diligence.
That’s why sellers would rather see zero due diligence than high earnest money; the former sounds much more committed, and also guarantees that they’ll get cash if you back out.
Now, should you offer both zero due diligence and higher earnest money?
Probably not, and here’s why:
The risks of doing zero due diligence
When you remove due diligence, you’re essentially committing to buy a house before the appraisal or the inspection.
Granted, you can still back out before closing — but you’ll lose your earnest money.
That’s why zeroing out due diligence is extremely risky for homes older than five years that are much more likely to need expensive, hidden repairs. The inspector may discover that the house needs $15,000 worth of roof and plumbing work, leaving you with a tough choice:
Bite the bullet and pay for the repairs?
Back out and lose $4,000 earnest money?
Therefore, zeroing out due diligence — and offering triple zeros as a whole — is safer on a newer home that’s less likely to have a Wendigo hiding in the attic.
2. Zero financing contingency
A financing contingency, aka a mortgage contingency, is the period of closing during which the buyer is trying to secure their mortgage.
See, you’ve probably already heard of these two terms:
- Pre-qualification is just a quick self-assessment of your finances, plus a soft credit check, to see how much house you might be able to afford.
- Pre-approval is when you let your lender dig into your financials (tax returns, bank statements going back 60 days, etc.) to determine what loan amount they might approve you for.
But there’s a third stage — a super-pre-approval, if you will — that lets sellers know that you’re the bee’s knees:
- Pre-underwriting is when your lender spends hours, sometimes days scrutinizing your financials on a whole new level. They’ll ask for pay stubs, verify your income and employment, ask tough questions — all to feel assured that you’ll be able to pay back your loan.
To be clear, underwriting always happens before a mortgage loan gets approved. The only difference here is that you’re getting it done before you make offers.
This lets you waive your financial contingency, which sellers love to see. It shows that most of the paperwork is already done, but more importantly, that the deal is less likely to crumble due to your lender deciding not to finance you.
The risks of having zero financing contingency
When you remove financing contingency from your home offer, you’re banking on the fact (heh) that your financial situation won’t change much between the day you’re pre-underwritten and the day you close.
But unless a surprise $30,000 bill comes along during your homebuying process, there’s little risk to getting your underwriting done early.
It’s worth noting, however, that not all lenders will pre-underwrite you. If you find one that doesn’t, I’d strongly suggest shopping around so you can retain this key competitive advantage!
3. Zero appraisal contingency
Finally, we have zero appraisal contingency.
An appraisal is when an objective third-party professional comes in during closing and assesses the true market value of the house.
The appraised value serves two purposes:
- To reassure the lender that they’re not loaning you $400,000 to buy a $300,000 house, since the house will serve as collateral on the loan.
- To give the buyer some negotiating power. If you offer $400,000 but the appraisal comes in at $350,000, you can tell the seller “we’ll pay $350,000 or we’re walkin’.”
No. 2 is why sellers generally hate appraisals.
- A low appraisal gives buyers a better price or a reason to back out.
- A high appraisal just shows that the buyer got a good deal.
So when you waive the appraisal as the buyer, you’re not only accelerating the closing timeline; you’re further guaranteeing the seller that you’ll buy the home, no matter what.
The cherry on top? You’re saving $400 to $750 on the appraisal.
The risk of having zero appraisal contingency
The risk of waiving your appraisal is that you’ll buy an overpriced house.
But that risk is somewhat diminished since you have to get your lender’s approval to waive the appraisal, anyhow. And if your lender waives the appraisal, that’s their blessing that they think it’s worth what you’re paying based on their own evaluation metrics.
Appraisal waivers are yet another reason why small, fast-moving local lenders may be a better option than the big, brand-name lenders; only the former will consider an appraisal waiver.
The bottom line
Waiving your buyer’s right to due diligence, financing contingency, and an appraisal may seem extreme. But extraordinary times call for extraordinary measures.
If it’s a fit for your risk tolerance and you meet the prerequisites, a triple zero offer can maximize your chances against cash offers — and help win you a new home.
Featured image: Shchus/Shutterstock.com
- Here’s how to write the perfect real estate offer letter
- A home buying checklist: organize your wants and needs