I work with a lot of first-time homebuyers, and from time to time we’ll identify a home that they want to make an offer on that is either bank-owned or a short sale. Either way, you’re ultimately dealing with a bank, and they’re the ones calling the shots. Many times these properties are very well-priced, which naturally generates a great deal of interest—especially if it is a “fixer” with the potential for upside once it’s remodeled. More often that not, though, when there is an all-cash offer in the mix, it can be very, very difficult to compete. Usually a bank is more interested in the quickest, surest thing, even if it means accepting a slightly lower offer. Getting the house off their books is the main goal.
In many cases, a bank will accept a lower offer if it’s all cash rather than have a loan involved. An all-cash buyer can close the sale with no concern for getting a loan, and this is very appealing to a seller—and they can often close in as little as two weeks or less. The last thing any seller wants is to take the home off the market for three weeks only to find out the buyer couldn’t get a loan and has to back out of the deal.
Who has that kind of cash laying around, you might ask yourself? Well, it’s not so hard to believe when you consider what’s happened over the past few years in the real estate market. Prices of course have been driven down by such factors as the downturn in the economy, the foreclosure crisis and the resulting explosion of inventory, etc. Many people, often investors, are realizing that now is the time to get back to investing in real estate. They have reached the conclusion that we’ve hit the bottom of the market or close to it, and they’re ready to pounce. Some may be cashing out stocks or their 401(k) accounts, or some may be straight up investors looking to park cash.
In February of this year, 33 percent of all home sales were all-cash deals, according to a study by the National Association of Realtors. In 2010, 58 percent of all homes that were bought as investments were bought with cash.
But fear not—all hope is not lost. While it is true that often cash deals take all when dealing with bank-owned or short sale properties, there are some things an ordinary buyer can do to increase their chances of nabbing that little jewel they have their eye on.
The first thing you can do is have yourself pre-approved by a reputable, competent lender. Not pre-qualified, but pre-approved. Be as certain as possible that you can close the deal, and have the documentation to back up that claim. Have the funds for your down payment liquid and verifiable. Anytime you are looking to buy property, this is good advice. When you are potentially competing with all-cash offers, it’s a must. The more cash you are able to offer as a down payment, the better. Twenty percent down is going to get you a lot further than 3.5 percent down when you’re competing with an all-cash offer.
Make sure your agent has you set up to receive emails with new listings the moment they hit the market. Be available to go see them right away and if necessary, get an offer submitted as soon as possible.
Another way you can increase your chances of trumping an all-cash offer is to steer clear of properties being sold by a bank and deal with individual homeowners. Even short sales can be a better bet than foreclosures, as there can be a long wait before short sale approval, and sellers want to know that a buyer is going to stick around during the approval process. Make sure your agent makes it clear that you are patient and willing to wait it out.
Often, equity owners aren’t in as much of a hurry to get their home sold, and can afford to wait for the right offer for them. For a bank, it’s all about the numbers. For a seller who’s been in the home for 15 years, it’s more emotional. That’s when—in the face of competition—that flowery love letter telling them how much you love the house might make the difference. They might be more inclined to take the offer that’s $25,000 higher but that requires them to wait while a buyer goes through the loan process. Again, though, this is where showing how solid a buyer you are is important. Offer the shortest contingency terms you’re able to. The sooner you show yourself to be 100 percent committed to the sale, the more appealing the offer. Find out what terms the seller is looking for in an offer. Maybe the quick close offered by an all-cash offer isn’t even appealing to them. They probably need at least 30 days to get out of the house—maybe even 45 or 60, which you can offer.
The bottom line is that when faced with an all-cash competitor, don’t be afraid to go for it, but be armed with as much as you can to tilt the odds in your favor!
Jefferson Hendrick is an L.A.-based Realtor with Keller Williams. Contact him with questions, concerns and real estate inquiries at [email protected] or facebook.com/jeffersonhendrickrealtor.