Got cash?
If not, and you’re in the market to buy a home, you are at a distinct disadvantage competing with cash homebuyers.
The volume of cash homebuyers in the market is up over the past year. In Florida, for instance, the number of homebuyers who paid cash for a home rose 150%, according to Bernadette Berdychowski at the Tampa Bay Times.
Alicia Adamczyk at cnbc.com tells the story of a young Virginia family, first-time homebuyers, who kept losing out on homes for sale to other buyers who “… would offer $20,000 or $30,000 more than the listing price, in cash.”
It sounds a bit trite, but it’s nonetheless true, especially in the housing market: Cash is king. But in today’s market, cash homebuyers are the Gorilla in the room.
In fact, “… all-cash offers increase homebuyers’ chances of getting a home up to 290 percent,” said Johnny Hannah at utahbusiness.com, citing recent research.
Those are some crazy odds and equally stiff competition to face in the search for a new home. Let’s dive into some tips I offer my customers that help give them a leg up.
Money talks and cash screams
When a homeowner is confronted with multiple offers, the first thing he or she will look at is the amount of money each buyer is offering. Naturally, the lowest offers get little consideration, regardless of how we urge them to seek out the terms the buyer is offering.
Often, terms trump price
The seller will then take the highest offers and look for the most favorable terms. These start with the loan contingency.
An offer with no loan contingency, because the buyer is one of those cash homebuyers, will naturally catch the seller’s eye. With no lender involved, there will be no mandated appraisal, no lender-demanded repairs and a smoother road to closing. It’s almost a slam-dunk.
That’s tough to compete against for the mortgage-bound homebuyer, especially those with FHA or VA loans. This doesn’t mean you can’t compete. You just need to pull out the big guns.
Sure, cash homebuyers make sellers smile. But, if you are in a position to provide the buyer assurances about your financial position, you can help sellers smile just as wide.
Don’t stop at obtaining a loan pre-approval letter; give the lender permission to share your salary, your bank balances and even your credit report.
“Overload the seller to show them you’re as solid as cash homebuyers,” suggests Brendon Desimone at Zillow Porchlight.
Show the seller you’re as nimble as the cash guys and gals
Not all lenders will conduct an appraisal before the offer is accepted, but many will. Ask your lender if you can order a pre-appraisal.
This way, you can submit an offer on which the appraisal has already been ordered and scheduled (hopefully within 24 to 48 hours of acceptance), negating one of the positives of the cash offer.
Desimone suggests that you also work with a lender who will give you “a head start on the mortgage.” Then, I will ensure the seller understands your mortgage is on steroids – which includes hyper-accelerating the lender’s receipt of the preliminary title report, HOA documents and others.
(Speaking of HOA’s, if this property we’re competing for is a condo, take a look at this information – it’s sure to give you a head start)
Do everything you can on your end, such as ensuring your paperwork has been submitted well in advance and quickly responding to communications from the lender.
Take Advantage of Cash Homebuyers Biggest Weakness
Cash homebuyers are an arrogant lot. No, I’m not dissing them, but just pointing out they understand the power and leverage they possess that mortgage-bound buyers don’t.
So, they typically come in with a lower price, knowing that cash screams and overwhelms most sellers’ better judgment.
If you can afford to over-bid, we suggest that you do. Not a lot, but enough to overcome the cash advantage, which may be “a little more than you think the home is worth,” according to Desimone.
First, the higher bid will catch the seller’s attention and put you in contention. Then, if you’ve guessed correctly, and your bid price is higher than the cash buyer’s, it may just win you the home.
“If you plan to live in the house for 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,” claims Desimone, and we agree.
These strategies are ideal for the financially-fit, serious homebuyer. They involve doing some initial legwork on getting your finances in order, choosing a lender, home inspector and ensuring you have a nimble and resourceful real estate team backing you up.
The latter, by the way, is most important. After all your hard work, it’s only natural that you’ll want to ensure your agent can structure the offer that will win you the home.
Don’t get discouraged if you’re a buyer seeking a tradition purchase strategy. You can compete against cash homebuyers… and win!
Feel free to reach out to me if you need additional advice.
