More than ever, we hear about homes being snatched up by "all cash" offers, and it's natural to wonder how you're ever going to compete without your own briefcase full of dollars. But you should know that your goal of homeownership isn't impossible. If you want to battle with those all-cash buyers who seem to be taking over the market, you're going to need to find a smart edge.
Why do Sellers Prefer Cash Offers?
For sellers deciding between multiple offers on a home, cash offers have a definite allure. Buyers who are paying with cash—as opposed to having their purchases financed with a mortgage lender—can immediately verify they have the money available to close on the transaction, meaning the closing process will go quickly and without any unexpected hiccups.
On the other hand, buyers who need a mortgage to finance their home purchase are a liability to sellers. Even with a pre-approval letter in hand, banks and lenders can still deny a buyer's loan for multiple reasons during the closing process, like if the home is appraised for less than the purchase price, or if the home inspection uncovers a huge problem with the property. In that case, the contracted sale will fall through and the sellers will have to go back to the drawing board, wasting time and money in the process to find another buyer. Cash offers tend to close quickly and predictably, sometimes even without an appraisal or home inspection.
Know The Truth About Competing "Cash" Offers
The term "all cash" is thrown around constantly in real estate, but it can be deceiving. Nobody is buying homes with garbage bags filled with cash. "Often time, developers, investors, etc. will say 'all cash,' but there is a very good chance that they're borrowing private or 'hard' money," says Ed Deveau of Century 21 Mario Real Estate. It might not always make a difference to the seller, but you can put in a little legwork and find out the facts about who you're competing with. Your agent will be more than happy to help out.
Show Them the Money (As Much as You Can)
Since it's challenging to compete with all-cash buyers, you need to come out with your strongest offer possible. The more money you can put into your down payment, the less money you're borrowing from the bank. This means a lower chance that your financing will fall through. "Let's face it, at the end of the day, most sellers want the most money possible with the smallest risk," says Sarah Maguire of Broadway Village Real Estate. Be prepared to come in at or above the asking price.
Work With a Local, Reputable Lender
Buying a home is one of those situations where you will be judged by the company you keep. Having a strong loan officer to represent you can speak volumes. "Great lenders are also strict lenders, and having a pre-approval letter signed by them may be as valuable as cash," says Thais Collins of Suzanne and Company Keller Williams Realty. "My favorite loan officers will pick up the phone and call list agents when they learn our clients are in competitive situations: they highlight their qualification and extend their contact for any questions that should come up while reviewing their offer."
Have a Personal Edge
They may have cash, but you can have heart. Write a personal letter to the seller, and explain why you should be the one lucky enough to get this house. If they've lived there a while, they probably have a real emotional attachment to the property. "Tell them why you love their home, and give them a little background about yourself, says Maguire. "Thank them for giving you the opportunity to submit an offer and taking the time to review it."
Bring the Receipts
Make it clear to the seller that even though you aren't able to pay in cash, you're still a highly trustworthy individual with a stable financial background. Have your financial advisor vouch for you, suggests Kevin Concannon of Steven Cohen Team Real Estate. "Show them a letter from your financial advisor about how over-qualified you are to get the mortgage you are seeking. Offer a call with your lender about how overqualified you are to get the loan.This might help to sway a seller your way versus a cash offer, or ease their concerns about accepting your financing contingency."
Make it clear that you can operate on the seller's schedule. If you can, find out how they're timing their move, and even their reason for moving. Some sellers might be under a tight schedule due to the start of school or a divorce agreement. Others could care less, and just don't want to be rushed. "If the seller feels like they have all the time in the world to sell, they might be more willing to take a contingency and a higher price, because they could always just go back to the market if the deal falls apart due to financing," says Concannon. "If they need to sell within a certain rushed timeframe, they would likely take even less for the property to get a cash, non contingent offer."
Want to make your offer as strong as possible? Consider waiving your inspection contingency, which strengthens your offer and reduces risk, says Maguire. (The inspection contingency gives buyers an out from an agreed-upon offer contract if the home doesn't pass inspection.) Sellers are drawn to the least amount of restrictions possible, and as a buyer, this gives you a leg up. Just keep in mind that this comes with certain risks. Anything potentially wrong with the house will be your responsibility to fix, as the buyer. For that reason, you may consider bringing in a home inspector before even putting down an offer on a home. This will cost money, but nothing will be a professional's ability to spot problems.