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How to Compete With a Cash Buyer When Buying a Home

Posted by janepeters on July 6, 2017
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The real estate market in Los Angeles is tight right now and if you are a buyer, especially a first-time home buyer, I am sure you are thinking “how can I compete with a cash buyer?”

How to compete with all cash buyer

To be perfectly honest competing agains a cash offer is not easy. There are buyers who may write their offer stating that they will be paying cash, and then they will switch to a loan during escrow. There are also buyers who have the cash or may borrow it in order to win the contract and they will refinance after closing. This  still requires a certain qualification. Gift money needs to be accounted for, and proof of funds has to be shown. Also the refinance rate may be a little higher than an original loan.

The main advantage of an all cash buyer is that the seller is not going to be at the mercy of their loan process, including having the home appraise for the sale amount, so sometimes the seller may accept a lower offer from a cash buyer.

So how do you compete?

All things being equal the seller is going to want to net the most in the sale and have the smoothest experience. You can make your offer shine.

You should be all set to go with your lender.  When you make your offer the seller and their agent are going to want to see a letter from your lender showing at the very least a pre-qualification for the loan amount you will need. If you can actually go through the complete approval process prior to purchasing then you will be in a much stronger position. Talk to your lender to see what they recommend to help you in this competitive market.

Discuss with your agent the best terms to apply to your offer. Here are some ideas:

  • Make a competitive offer. If you know there are other interested parties you will need to offer at least the list price and maybe a little over. But leave yourself room should a counter offer come. If and when it does make your absolute best offer.
  • Can you afford a larger downpayment? It will put you ahead of those buyers with a 20% downpayment. (Anything less than 20% in this market may not be taken seriously, and you will have to pay mortgage insurance).
  • Find out how long an escrow the seller would like. You cannot commit to anything less than 45 days because of the length of the loan process, but maybe they would like a longer escrow. Or maybe they would like to lease back the home until they are ready to move. If you know that is an issue you could write it into your offer.
  • Shorten your due diligence period. The standard on the contract is 17 days. Your agent should be able to tell you how quickly they can get the general inspector out, and possibly additional inspectors also. If you can shorten the period to seven days that will look good. Remember, if you find something major which you need to investigate further you can always ask for an extension. Also, if you have to ask for repairs then the clock stops. But removing all your contingencies as quickly as possible will help. The cash buyer may have a 10 day or even 17 day due diligence contingency.
  • Waive the home warranty. The cost is around $500 for a one year policy with a deductible, and there is no guarantee that the warranty company will fix a problem should it occur. That is one less thing you are asking for.
  • This is not something I would suggest, but if you have the money and are willing to make up the difference should the home not appraise, you can pay any difference to satisfy the lender. That is one way to remove one of the advantages of a competing cash offer. However, it is a risky proposition.
  • Write a personal letter to the seller telling them about yourself and why you love their home. That can sometimes give you a huge advantage, especially if the seller has lived in the home a long time and has an emotional attachment. Also it is rare, but sometimes you will be at an open house or showing and the seller will be there. Connecting with them can make a good impression. I have often heard feedback from a listing agent that the seller liked my client and hoped that they would be the successful buyer. And by the same token make sure to pick your agent wisely. That agent is going to be interacting with the listing agent and how they interact is also going to make a difference. Agents like to work with agents they like and who are going to make the whole process a smooth one.

Competing with a cash buyer is not ideal, but it is not impossible. Put forward your best offer and you never know. That home you love could be yours.

 

Need Help? Have questions? Fill out the CONTACT FORM or call Jane at 310-351-9208

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