How Do I Compete Against An All Cash Offer?
In today’s “Ask the Real Estate Agent” segment, I am going to answer a question I’ve been getting from a lot of buyers about what to do if they keep losing out to against a cash offer.
In our area, there are a lot of people that have done very well and are in a position to make a cash offer. That does a lot of things for the seller in helping them choose those types of offers. One, it eliminates the risk of financing falling through for an offer dependent on a loan. Two, it makes the buyer look much more committed and serious. Oftentimes, sellers pick those offers even if they’re not the highest sometimes. If you’re a buyer, there are a number of things that you can do to get close to equal footing as that cash offer.
Shorten the Duration
If you think you’re going to be in a competing situation, there are a couple of things you can do to get close to equal footing with that cash offer. One is you can shorten the amount of time or completely eliminate the appraisal contingency. The second thing you can do is shorten or eliminate the financing contingency. When you do one of those two items, you are basically putting your earnest money deposit on the line if financing falls through or the appraisal comes in low. Typically, if the appraisal comes in low, you still have many, many options and your real estate agent will tailor you a solution. We’ve never had a situation where an appraisal came in low causing the buyer to not being able to buy the home.
If the appraisal does come in low and you don’t have an appraisal contingency, you can take a loan that has a higher LTV. If your loan is going to be based on a 20% down payment, you can instead take a loan that’s based on a 10% down payment. So the interest rate might go up a little, but if it’s helping you get the home of your dreams, it might be worth it.
Up Your Cash
Another thing you can do is simply bring more cash to the table. If the appraisal is $10,000 low and you put down an extra $10,000, it’s going to do two things. 1) it’s going to make your loan costs cheaper, and 2), it’s going to help you still get the home.
As far as the financing contingency goes, as long as you have talked to a reputable lender and given them all your documentation up front, and gotten qualified, there is no reason to think that you would not be able to get financing for the home.
Other things you can do to help make your offer more on terms with cash are increasing your earnest money deposit, increasing your down payment, and shortening the closing timeframe. There are lenders that can still close within two weeks because one other advantage of a cash offer, potentially, is they can close faster. If your lender can close in two weeks (and we know several lenders that do have that ability), you’re going to drastically reduce the advantage that the cash offer might have over you.
In summary, the things you can do are, eliminate or reduce the financing and appraisal contingencies, put a higher earnest money deposit, put a higher down payment, and shorten your closing time. If you do those four things, you’re still not going to be quite as good as cash, but you’ll be as close as possible, which for many of us that don’t have several hundreds of thousand dollars sitting around, that’s going to be the best possible option.
As always, let us know if you have any questions about this or if you have other questions for the next “Ask the Real Estate Agent” segment, we’d love to hear them. Thank you for reading and have a great day.
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