If you are an all-cash buyer purchasing a home you stand a pretty good chance of being the front runner in a bidding war. In the crazy multi-offer days of the past few years cash was king. Home sellers look favorably on the all-cash offer as long as the terms and conditions are reasonable. However, the home buying competition has forced prices up in many areas to a ridiculous, and pretty soon, unsustainable level.
Buyers who are obtaining a loan are protected from the prospect of overpaying by their lender. The appraisal process is going to determine how much the home is “worth” and approve a loan accordingly. Of course the buyer can choose to put in more cash if the home does not appraise, but it is rare that they are going to start out upside down in their home-ownership quest.
Cash buyers typically do not get an appraisal and it is not a contingency of the contract, which is a big part of their attraction to sellers. This is how home prices get out of hand In a multiple bidding situation the cash buyer can get caught up in the madness and end up overpaying. Even if they are the only party interested in a property they may not do the investigation they need to ensure that they are buying at the market price.
It is extremely important for cash buyers to work with a good real estate agent. That person is going to advise them of the comps in the area and what they should offer. There are so many grossly overpriced properties out there that the buying public needs to be protected from. Imagine approaching the listing agent to represent you on one of these deals! They are the ones who helped price the property in the first place and are certainly not going to suddenly become realistic. And here in Los Angeles I am not talking about homes overpriced by a few thousand, I am talking about homes overpriced by a few million! A traditional buyer is never going to be able to get a loan for one of those properties so the cash buyer is going to be the target.
Over the past few years that has been a lot of testing the market with home pricing. Supposedly a home is worth what a buyer is going to pay for it, but the cash buyer needs to let the market determine the price so everyone wins.