Home Buyer’s: How To Beat A Cash Offer
On average, up to 30% of homebuyers offer cash. There’s no point in denying that cash is always better and often wins the bid, but that’s not always the case. I’ve had home sellers turn down a cash offer in favor of a homebuyer who was financing. Why? Because the cash offer came with some big demands.
Here are some great ways to get your offer front and center with a home seller’s when you find yourself in a multiple offer situation.
Get Pre-Approved Mortgage Loan
I can’t emphasize this enough. Homesellers won’t wait for you to get your act together. Waiting to start the pre-approval process until after you’ve found the house, is risky at best. In order to compete with other home buyers in your price range, you must have it ready and in your hand first. Don’t make the mistake of letting it expire. It could take a few days time to re-issue a new one and by then, another buyer has secured the house under contract.
Bid vs Ask Price
No one wants to overpay. But one of the tactics used by homeowners who are looking for a quick sale is to price their home just under the current market. This drives a lot of attention and homebuyer activity from the get-go. More often than not, it will result in a multiple offer situation that goes well above the listing price.
Look, I know it’s easy to get caught up in the emotional bidding war and focus on just winning. Letting your emotions override common sense is not a wise course of action.
My best advice is to know what the true market value of the property is. You do not want to find yourself overpaying now and then hope and pray that your neighborhood’s home values will catch up. That is never a good situation.
Good Faith Deposit
I recommend this strategy to my home buyers all of the time. I can’t say we win 100% of the time but even when we don’t, we are typically a close second. EMDs or Earnest Money Deposits are often referred to as Good Faith Deposits that demonstrate your level of seriousness to the seller.
Typically, they are around 10% of the purchase price. However, when I know my clients are competing against other home buyers, I’ll recommend 20% or higher. This sum is held in escrow by the broker representing the home buyer in the transaction. Then at closing, it gets credited toward the purchase price.
Home Buyer Contract
The less “if, And’s or But’s” you build into your offer, the better it will be received. Now if you have a house that must be sold first, you’re at somewhat of a disadvantage mainly because there’s always the big elephant in the room. What if your home buyer suddenly pulls out?
However, if your credit and income are high enough, you may be able to obtain mortgage approval without requiring the immediate sale of your existing home. This way, while your waiting to find the buyer of your current residence, any offer you make on a new home will be clear of any such contingencies and really give you a fighting chance.
Another good position to be in is when you can tell the seller that you’ve already found a buyer, gone through the home inspection and appraisal processes and have a set closing date. Now the seller knows the that the likelihood of your buyer pulling out is slim.
Quick Home Inspections
Shorten the length of time you need for home inspections. I would never recommend you skip on a home inspection. Even if the property is bank-owned.
The typical time given for home inspections is ten days. However, you could shorten it to seven days and show the homeowner you’re willing to move quickly for them.
Mortgage Is In Underwriting
Start the underwriting process early so you can close in just a couple of weeks instead of months. Look for a lender who is willing to underwrite part of your loan with a house to be added later. Your lender will then issue a “Loan Commitment” letter that bears even greater weight than a pre-approval.
Addressing More Than Meets The Eye
Aside from price, find out what’s really important to the seller. Have they already secured a new home? Do they need more time to find and close on their purchase? Maybe they want to take Mom’s rose bush with them. Showing them your willingness to remain flexible could be what puts you over the top.
Remember I mentioned that my home-selling clients declined a cash offer in favor of a home buyer who was financing? Here’s why. The cash offer demanded a quick close and the home sellers needed much more time than that.
Show Them The Money!
Cash offers usually always require proof of funds. You could include a letter from your bank, or a copy of your bank statement (make sure to remove all sensitive data such as an account number) proving that you have the downpayment money ready and available.
So, the good news is there are several tactics you can employ discussed here to boost your chances of submitting a very competitive purchase offer. Although I cannot guarantee you’ll win the bid every time, based on my own track record, you’ll likely place second.
One last big tip: I’d highly recommend is to ask your Realtor to keep a close eye on the property listing and check with the listing agent during the first ten days. Sometimes, the buyer will pull out of the deal and if you’re the first to know, you can grab it even before it hits the market again. I wrote about just such a situation that happened with one of my home buyers. Check it out below.
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You’re invited to leave your questions and comments below. I’m happy to help.