Strategies to beat all-cash offers as a home buyer
No home buyer wants to compete with all-cash offers to get the property they really want. But you should not consider it impossible, either.
There’s a decent chance you will encounter all-cash competition in purchasing your next property, especially if you’re looking in markets like Los Angeles or the Bay Area. All-cash sales represented 22 percent of all California transactions in August of 2016. Nationwide, cash sales accounted for 31.1 percent of total home sales, a number that has been declining since 2011.
Some home sellers want every last cent out of their property, and that will never change. But I have helped a number of clients beat out all- and mostly-cash offers and using specific strategies can give you a competitive advantage:
Determine what motivates the sellers. Home owners sell their properties for different reasons. Are they being forced to sell? Is it a second or third property with no emotional connection? Did they raise their family in the house? Not every seller demands the quickest close or highest price. Some home owners don't want to sell to flippers or developers. It’s critical to find out what matters to the sellers and customize your offer based on that context.
Put your best foot forward. I recommend this to clients repeatedly. And it has worked repeatedly. If you’re expecting a property to draw several other offers in many cases making your best offer first is the best strategy. For some sellers it doesn’t matter if an offer is all-cash or not – it’s simply about finding the right number. In one instance, I helped clients learn the previous sales price for a property that had fallen out of escrow. Our offer was creatively and strategically based off that number, and the sellers accepted in less than 24 hours without bringing the property back on the market. Ask yourself this: Is the end game to get the property, or to get a deal?
The details of your offer matter. One way to compete with an all-cash buyer is to make your offer as cash-like as possible. By reducing or even eliminating contingencies, you can show sellers you’re serious about moving forward quickly. While I don’t recommend bypassing a home inspection, you can eliminate items within the offer that would give sellers reason to counter-offer or not even consider your offer.
Reduce the risk for the sellers. The biggest reason sellers might be apt to accept an all-cash offer is that there is no risk of the mortgage loan falling through. So, eliminate that risk for them. Go with a lender you have used before, has a sterling reputation, and (always) leverage a pre-approval letter that explains your existing relationship. Provide finance statements that prove you have the down payment. Offer to use an escrow company who knows you. Let the sellers know in no uncertain terms how important the purchase is and that you don’t want it to fall through either.
Make a personal connection. Creating a personal relationship with the listing agent and the sellers can create a huge advantage, and it’s what separates the best buying agents. It’s a bit of an art. I have had clients get their offer accepted because of a heartfelt letter that won over the owners, who raised their family in the hosue. I have had clients beat out an all-cash offer because the listing agent (from a directly competing broker) preferred to work with me on a deal. I have had clients get their offer chosen over a mostly-cash buyer because they spent a few extra minutes having coffee with the sellers. Make it difficult for sellers and their agent to say no to someone they really like.