How to Make a Competitive Offer Against All-Cash Home Buyers
Buyers who aren't paying cash for a house aren't necessarily out of luck. Here's how you can gain an edge over cash buyers.
Buyers making a cash offer on a house are active in many markets, and they can strike fear in new buyers who are bidding on a home. Cash home buyers can perform and close quickly and provide sellers with a sense of comfort.
But does this mean a solid buyer putting down 20 percent or more shouldn’t attempt to compete with cash home buyers? Absolutely not.
What if you can’t make a cash offer on a house?
The truth is, a buyer getting a mortgage can still compete against cash home buyers and win.
These are the questions that can make the difference:
- Do you have a 20-percent down payment?
- Are you well employed?
- Do you have cash reserves in addition to your down payment?
- Do you have very little debt?
- Do you have good credit?
If you answered yes to most or all of these questions, your purchase should be as bulletproof as a cash home buyer’s.
How can you compete against cash home buyers?
- Be up front about your finances. Make your competitive offer as strong as cash by providing the seller the confidence they need to accept your offer. In addition to a pre-approval letter from your lender, be open to allowing your agent or lender to provide financial information with your offer. Tell them what you make, and how much money you have in the bank. Show bank statements and even a copy of your credit report. Overload the seller to show them that you’re as solid as the cash buyer.
- Ask your lender to get a head start on the mortgage. See if your mortgage professional can move the process along sooner. Send the lender a copy of the preliminary title report, if available. If you’re buying a condo, find out if a condo questionnaire is available and give it to your lender. If you take any of these steps, let the seller know. Of course, if you have not already, provide the necessary financial documentation to your lender right away.
- Shorten the loan and appraisal contingencies. Ask your lender how quickly they can send an appraiser to the property, and how long the loan would take to turn around. In some parts of the country, loans are being approved in less than 14 days — sometimes even 10.
- Pre-order an appraisal. This may not be as easy with a bigger bank. But smaller banks, direct lenders or mortgage brokers can line up the appraisal in advance. At the time your offer is written, tell the seller the appraisal has already been ordered. If you can get the appraiser out within 24-48 hours of coming to terms with the seller, it’s half the battle.
- Inspect quickly. Along with the quick appraisal and loan contingencies, get your inspector in and out. Shelling out a few hundred dollars and getting the inspections done within days of having your offer accepted shows the seller you mean business. It also gives them comfort that they’ll get over the biggest hurdle quickly.
- Overpay. Cash buyers nearly always expect a discount from the seller simply because they’re offering cash and are a sure thing. As a result, the cash buyer will often make a lower offer. To increase your chances, top the cash offer, even if means paying a little more than you think the home is worth. If a seller is faced with a few thousand dollars’ difference, the seller probably wouldn’t risk it. But what if your offer is five percent higher than the cash buyer’s? The seller, perhaps wanting the best of both worlds, may ask the cash buyer to raise his or her offer. Some cash buyers will offer more, but not always enough to match. If you plan to live in the house for many years and it’s the home of your dreams, paying a little more to get the deal might only translate into $20 per month over the course of a long-term mortgage.
- Make yourself known to the seller. Some buyers write “love letters” to sellers, hoping to appeal to their personal side. Does this work? Sometimes! If you’re competing with a cash buyer, particularly an investor who plans to rent the home out, it can’t hurt to get a little personal with your real estate offer letter. The seller almost always wants to know more about the potential buyer. Ask your agent to write a cover letter and an introduction. Let the seller know who you are, why you like the home and what your intentions are.
Do the best you can and be realistic. Make sure your financial “‘house” is in order. Work with a good local real estate agent, and start working with a local mortgage professional well in advance. Structure your offer to show that you’re ready to roll.