This year has been a competitive one for many home buyers in Seattle. One out of five homes in Seattle and the Eastside has been bought with cash this year. Many buyers face competing bids and often folks will lose to the seemingly unbeatable “cash offer”, sometimes on multiple occasions. Losing multiple times to cash buyers is disheartening and will invoke more than a twinge of envy in home buyers who need a mortgage. If you need a mortgage, don’t be discouraged. You can beat an all-cash offer with the right strategies.
An all-cash offer does not imply a discount in a competitive market
We’ve been on the seller’s side of many competing bids this year and have received many all-cash offers. There is a hubris among some cash buyers that leads them to believe that their cash offer is so superior to others that they can command a substantial discount relative to everyone else. We’ve seem cash buyers try to get $10k, $20k or even $50k off or a list price because they have cash. If there are multiple offers with mortgages and higher purchase prices, those offers often win. In fact, our sellers have routinely discarded the all-cash offer immediately because the price is so low.
Demonstrate that your mortgage is low-risk
From a seller’s perspective, there is little risk in an offer that has a mortgage, provided that the buyer demonstrates that they are well-qualified. Make sure you put forth the best down payment you can, and get yourself a loan officer who can sell your financing prowess to the listing agent. Be sure to mention your great employment status, strong credit scores, etc. Your real estate agent and lender need to pitch the seller and their agent on what a strong buyer you are. Give them the utmost confidence that you can get the loan closed, even if that means sharing a few more details than you normally would.
If you were a seller, would you really sacrifice an additional $25k to go with a cash offer when there is a really strong buyer in the mix who still needs a mortgage? Of course you wouldn’t.
Make all of the other terms excellent
An offer to buy a home is more than just the offer price. Terms play a role in the seller’s decision-making process. Look for all contingencies in the offer and try to waive them upfront. You can pre-inspect the home and waive your inspection contingency. You can also approve the seller disclosure and title report ahead of time.
You may even want to consider removal of your financing and appraisal contingencies. With strong income, little debt and strong credit scores, there is very little chance that your financing is going to fail, provided that you did all of the necessary homework with your lender for your pre-approval. You can also get a strong feel for what the home may appraise for by looking at recent sales nearby. If you’ve got enough cash, a shortfall in your appraisal can be overcome as well. The bank will loan you less money and you’ll have to bring a little more to the closing table. There are risks to removal of these contingencies, but if you educate yourself on the risk, you can be comfortable with their removal.
Lastly, give the seller exactly what they want on the remaining terms. If they need a specific closing date or move-out date, then accommodate their request. If they don’t want to sell their washer/dryer, don’t try to negotiate for them. Give the seller an offer that they can sign on-the-spot with no changes.
Pay a little more
Money talks for most home sellers. If you pit two nearly identical offers against one another, if one of them is all-cash, it will win. What if the offer with the mortgage offers $1k more than the cash offer? Probably still wouldn’t change the seller’s decision. But what if the offer with the mortgage offers $5k or $10k more? Now you’ve got the seller’s attention with an amount that may change their behavior and sway them to accept your offer.
Sometimes cash is the only option
There are properties that have lending problems. If the home has very obvious repair issues like a leaky roof, missing kitchen or unfinished construction, it may not qualify for a regular mortgage. In condos, HOA lititgation, too many rentals or large special assessments can also prevent a buyer from getting a mortgage. For properties like this, sometimes cash is the only option.
Don’t get discouraged
If you are in a hyper-competitive market segment, you can lose to cash buyers a few times in a row. It is natural to feel frustrated, and it will make you feel that buying a great home in your price range is out of your reach because everyone else seemingly has large piles of cash sitting around.
Don’t despair. Not every buyer is a cash buyer, and many cash buyers can be beaten with the right offer. Every buyer we’ve ever worked with eventually gets a home. Sometimes you just need to stick with it and keep trying.