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How to Build an Interest Rate Cap into Your Offers


30 years ago, when I entered the real estate business, we used to see a clause, and I used to use this all the time myself, that we would build into offers.

And the clause said something to this effect:

"This offer is subject to the buyer qualifying for a loan and the home qualifying for a loan as noted in the offer terms. And you could say the loan type (conventional, FHA VA, whatever you're gonna do there) at an interest rate not to exceed X."

And that was the key part of that language. And I'm not suggesting you use that language exactly, that's something for you to talk about with your broker. But we would just have an interest rate cap built into our offers.

Now, some people would say, Well Jim, when I have my buyers get qualified, they generally lock themselves in. Not every buyer locks themselves in. A lot of buyers like to try to gamble and float it.

So when we build that language in, it gives the buyer an opportunity if they didn't lock in to renegotiate mid-transaction. Imagine that they don't have that language trying to negotiate mid-transaction. They might still be able to do it if they're within their due diligence period. But having that language there is a real protection for the client, so that they don't pay some enormous amount of interest.

And interest rates are super volatile right now. The Fed has announced they're probably gonna raise interest rates again two more times before taking a pause. So we've gotta really be careful, really be vigilant with our buyers. And buyers will love the fact that we're protecting their interest with this. You gotta, you know, manage expectations with the buyers. They can't put some number in there that's below what people are paying for interest today, obviously.

So you wanna make it a realistic number that you're plugging in. But guys, this is something that I would encourage you to maybe get at the forefront of before other agents start doing it to you, right?

Educate your buyers about the process and your sellers about on the other side.

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