Often, credit buyers feel as though they cannot compete with cash buyers, and this can be upsetting when a cash buyer places a bid on a person’s dream home. Cash does offer benefits for sellers and can be very difficult to compete with.
When a seller receives a cash offer they do not have to worry about banks or loans and the entire process tends to run smoother and quicker.
That does not mean, however, that it is impossible to compete with a cash offer. So how do you compete with a cash real estate offer? The trick is always to make the credit offer look more appealing for the seller. Here are some tips for competing with a cash offer to secure the perfect house. Use these tips wisely to construct an offer that just may having a fighting chance of beating out the cash proposal.
Make Sure The Seller Knows The Offer is Secure
Having a home sale fall through is extremely frustrating for any seller, and financial difficulties are a common problem. This is one reason why cash buyers are so appealing; the cash is available up front without having to wonder if the buyer will get financing. To make an offer more tempting, the credit buyer should come to the table with plenty of evidence that their offer is just as solid.
A pre-approval letter from a lender indicating that the buyer is a well qualified and approved can help justify some of the sellers concerns. Make sure you understand the distinction between a pre-approval letter and a pre-qualification letter as they are very different. A pre-qualification letter is essentially worthless and not what a seller or a savvy real estate agent will be looking to see. Another tactic to make your offer look stronger is to have the pre-approval letter be for substantially more than what you have offered the seller.
Those who are comfortable being open with the seller should also consider making financial information available to the seller, such as employment information or assets, to help bolster the claim that a loan for the particular person is a sure thing. For example if you have a bank account that is flush with cash but you are choosing to get a mortgage for your own financial reasons at least the seller knows you have the money available as a fall back plan.
Be Prepared to Bid Higher
Cash buyers know that their offers look appealing to sellers because of their ability to pay cash up front. For this reason, at times they expect some kind of discount on the listing price. The credit buyer can help counteract the appeal of the cash offer by offering a higher bid.
Since the credit buyer knows that they may have to bid a little higher than the cash buyer, it is probably a good idea to consider homes lower in the personal price range. This will give a buyer more room to make that higher bid to win the house without going over budget.
Make Every Effort to Speed Up The Process
Certain steps, such as waiting for appraisals and loan approval, can end up adding weeks or months to the process. Speak with the loan officer to try and learn what can be done to speed up the timeline. For example, ask the mortgage broker to try to set up a real estate appraisal appointment immediately. Some of the biggest delays with financing occur because of the time it takes for the appraisal to get done.
When an offer is made on the home, the credit buyer can then let the seller know that they have already contacted the lender and asked them to order the appraisal right out of the gate.
Similarly, be in contact with a home inspector who can be brought out to see the house within a few days to get the inspections completed. Having the inspection finished early on in the process can also let the seller know how serious the credit buyer is about the house. Some parts of the country also allow for loans to be secured in as few as fourteen days, so if this is an option, also pass on to the seller how quickly the loan paperwork can be finalized. Have your mortgage broker write a letter stating how quickly they turn around their loans.
Make Your Offer Personal
There are a variety of ways to try and connect to the seller on a more personal level. Some people will send letters to the seller, describing their situation and their plans for the house. Other people will speak with their real estate agent and ask them to really present the offer, not just email it over.
Sending a personalized letter may or may not have any impact whatsoever if the seller makes analytical decisions. Believe it or not however, there are some who will make decisions based on emotion.
If the offers are very close or even slightly better, the buyer who has connected personally with the seller could have the upper hand. In fact recently while I was selling a home in Northbridge Massachusetts, I had received multiple offers on a property and the seller chose to go with the non cash offer due to the fact that the seller happened to be on the way out the door when the buyer arrived. The seller was able to see the couple and their two small kids. The buyer’s ended up asking the seller and few questions about the home. There was a connection made with this particular seller.
The buyer was smart when making their offer by including a personalized letter that mentioned all the great things about the property along with how they knew their kids would enjoy growing up in the home. This little personal gesture put their offer over the top.
Be Willing to Take A Risk
To make an offer seem even more appealing, some buyers will take risks such as waiving the appraisal contingency or even the financing all together. While you may not have the cash readily available, if you are 100 percent confident you can get the financing some will take the risk of taking the financing contingency out of the offer contract.
While many times this risk pays off, there are also plenty of times that it does not. Occasionally, for houses in a market where the buyer is very confident about the price and is absolutely in love with the house, it can be worth taking the chance, but often people jump too quickly when making these larger gambles.
There are also other, risks that buyers can take that can help swing an offer in their favor. For example, some consider removing the home inspection clause if they are relatively certain there are no big home inspection issues that will be discovered. A lack of problems of course is more common with younger homes that have been really well constructed.
If you are not that brave another alternative is to make the home inspection escape clause have a higher dollar figure. In most real estate contracts where there is a home inspection contingency, a buyer can put in an amount of money by which they can cancel the contract if home inspection issues are discovered. The last thing a seller wants to deal with is negotiating repair items after a home inspection. Letting a seller know up front that you are not going to knit pick at every little problem the home inspector finds can go a long way in helping to make your offer more appealing.
Give The Seller Their Desired Closing Date
One of the terms in a real estate offer that is almost always very important to a seller is the closing date. When you are competing against a cash offer being super flexible with the sellers desired closing is really important. If the seller want to close on a specific date make sure you give it to them!
In real estate transactions sometimes the seller may even need for some reason to rent the home back from you for a certain period of time. The seller may need the equity out of their home but not have a place to live established yet. Giving the seller a flexible term like renting back for a period of time could be huge in the grand scheme of things. Are you beginning to see how to beat a cash real estate offer?
Other Attractive Items For The Seller
Another example is to increase what would be considered a normal escrow deposit. If it is common to put 5% down with an offer contract make your deposit larger. The stronger you can make all the other terms in an offer the greater chance you will have of being the winner.
If for some reason the seller is offering some kind of concession, such as carpet or painting allowances if the home really needs it, you could opt to waive the seller from having to do this.
There is no denying that competing against a cash offer will be difficult. The convenience that the offer presents for the seller makes it very appealing, especially given the difficulties that can arise when dealing with a buyer procuring financing.
Just because someone makes a cash offer on a house that a credit buyer has fallen in love with, however, does not mean that there is nothing to be done. Taking the above advice will give any credit buyer the best chance of securing their dream home, regardless of the other bids.
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