You can hardly go to a party or stand in line at Starbucks anymore without overhearing how somebody’s bid on a house got beat out by an all-cash offer. It’s the 800-pound gorilla in the room, and the last time you checked, this popular primate in the hands of cash-rich real estate buyers has been looking more menacing than ever.
Maybe losing your dream home to an all-cash offer has even happened to you, and maybe it could happen again. But you’re not absolutely out of the game. You can turn the odds in your favor or at least improve them so you stand a winning chance against the all-cash bully.
To compete against all-cash offers, however, you’ll need to fine-tune your game plan on both offense and defense.
Designate your real estate agent to make the following arguments on your behalf:
1. Cash buyers can be bottom-feeding investors who believe their cash entitles them to a special deal or discount. For whatever reason, many all cash-buyers think they’re doing sellers a favor, so in turn, they should get a bargain price. Your job is to punch a hole in this air of entitlement.
2. Cash buyers carry the risk of putting up money whose source may sometimes be questionable. If I were a seller, I’d be asking, where exactly did the money come from? From the previous sale of a home? The sale of stocks or bonds? The sale of a business? All these sources, of course, are fine, but what if the cash were from a source that could be considered — at least in some circles — cloudy, shady or sketchy? Hmmm.
3. Cash buyers believe that by eliminating the middleman — such as a bank, mortgage broker or mortgage banker — they are simplifying and expediting the home buying process for the seller. Yet financial institutions, which are highly regulated, add a measure of safety and security to real estate transactions. Simplicity and haste versus safety and security? Hmmm.
4. Cash-buyer? Bank-financed buyer? Does it really make a difference to the seller, who is going to be bought out one way or the other? The seller’s bottom line will be the same regardless. Money is still money, the last I checked.
If you’ve been at all effective in pressing your offense, you should have at least raised a few suspicions and concerns on the part of the seller that maybe cash isn’t all that it’s cracked up to be.
Defense that wins championships, baby — and yours has to be ready to anticipate every move or gambit that a cash buyer is going to make. To tangle with the all-cash brute, you can’t be soft or squishy about any aspect of your lender-financed offer.
Here’s a checklist of defensive measures to help you hold off your formidable foe:
1. Get your financials in shape. If you’ve been poking a few holes in the whole all-cash mystique, this is a good thing, but, at the same time, your financials better be air-tight and beyond reproach, leaving no doubt that you’re the most qualified buyer competing for the seller’s home. That means you have steady employment, little debt, strong FICOs, can come in with a 20 percent down payment, and have cash reserves. Otherwise, you’re just a pretender, not a player.
2. Choose a lender that’s going to go to bat for you — one that is used to competing against all cash-bidders and coming out the winner. Your lender of choice will have to be someone who can act fast and be flexible, especially in terms of reducing approval times for the appraisal and final loan approval.
3. Get your lender to attach a note to your already ironclad pre-approval letter, verifying you’re a well-qualified buyer. Your lender should be eager to write this note because he or she, like you, wants your deal to sail through. This personal touch can only aid your cause.
4. Get your real estate agent to share your passions or any aspects of your personal history that could resonate with the seller. Perhaps, you’re a member of the National Trust for Historic Preservation. If you’re making an offer on an Arts and Crafts, Victorian, or Mid-century Modern charmer, make it known why you believe you would be the best steward of this vintage home. This tact might be a tad sentimental, but there’s no shame in appealing to the seller’s sense of neighborhood — his leaving his burg as good, if not better, than when he moved in.
Playing the emotional card has worked for Michael Winslow, a real estate agent with Blue Picket Realty in Colorado Springs, Colo. “We were up against a strong all-cash buyer,” Winslow said, “but my buyer was a returning war veteran, which struck a chord with the seller.”
5. Prepare to go deep (taking on added, but calculated risks). Again, a good defense will anticipate the all-cash buyer’s offense, the twin pillars of which are speed and simplicity. With an all-cash offer, for example, there’s no need to wait for a bank’s appraisal. In a sense, the cash buyer is the bank. Therefore, depending on how bad you want the house, you have to ask yourself, Would I be willing to waive the appraisal? Or if the appraisal comes in under asking, will I be willing to make up the shortfall to keep the deal together? Without a professional appraisal, you also might wonder if you’re overpaying.
Similarly, inspections also chew up the clock and foment seller fears about making costly repairs. So, to make your offer more attractive than the all-cash buyer’s, would you go so far as to waive your right to a home inspection? Your choice would obviously be popular with the seller, but there’s no telling the “hidden” risks you’d be exposing yourself to, depending on the home’s true condition.
Going deep could also mean reaching deeper into your pockets to outgun an all-cash, full-price offer.
“An all-cash offer is tough to beat but if you can show your seller he’ll actually net more with a competing non-cash offer, you’ll get the seller’s attention,” said Julie Lilly, a real estate agent in Taylorville, Pa.
So, can a financed offer compete against an all-cash offer?
“Absolutely, absolutely,” said Laurie Tweten, a real estate agent with Coldwell Banker in Grand Forks, N.D. “Here we like to do business with people we know. In a small town like this, a seller likes to know who the buyer is.
“Initially, an all-cash offer can sounds pretty good, but it really comes down to the terms of the contract, doesn’t it?”
Peter is a staff writer at MyBankTracker.com who covers banking, personal finance, investing and homeownership.