Posted 09/27/2016

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Surprising Strategies To Beat An All-Cash Offer

5 Ways To Compete With Cash Home Buyers

Gina Pogol

The Mortgage Reports Contributor

There Are More Cash Buyers Than You Think

In May 2016, pending home sales hit their highest level in ten years.

A pending sale is one that a buyer has agreed to, but is not yet closed.

In short, a lot of people are buying homes.

It’s officially no longer a buyer’s market in much of the U.S., and home shoppers face competition from both traditional buyers and cash-wielding investors.

About 1 in 3 homes purchased in the U.S. are all-cash, according to real estate data company Realtytrac. In some markets, that number shoots well past 2 in 3.

First-time home buyers, those buying again after foreclosure, and even buyers using FHA financing may not look as good to a seller as a buyer who is paying cash.

Fortunately, a buyer who needs financing can beat out a cash buyer, if they prepare the right way. Here are five ways to do just that.

Verify your new rate (Jan 16th, 2018)

1. Be Prepared. Get A Pre-Approval

Preparation or lack thereof can make or break your offer.

If you want home sellers to take you seriously, you need a mortgage pre-approval, not just prequalification.

Prequalification often means answering a few questions and getting a letter stating that you probably qualify.  The lender might not even pull your credit report or verify your income.

To get mortgage pre-approval, however, you’ll complete a home loan application, authorize a "credit pull” and supply income and asset documentation.

Don’t go property shopping until the lender approves your application, only needing the property address to finalize the loan.

Verify your new rate (Jan 16th, 2018)

2. Big Earnest Money Means You’re Serious

Want to compete with a motivated cash buyer?

Put up as much earnest money as you can -- even the entire down payment.

If the purchase doesn’t go through, you get it back, but impressive earnest money makes it clear that you’re serious about your purchase and can afford it.

Some experts recommend beating investors at their own game. One of their favorite tricks is attaching a check for the earnest money to the offer.

That sends the message that you’re ready to close, and it can give you a leg up on your competition.

3. It's Okay To Offer A Higher Price

You may have to go a little higher than an investor if you really want the property.

Washington, DC REALTOR® Candy Miles-Crocker says, “It is extremely difficult to compete with all-cash offers, but there are times when an owner-occupied buyer can make a higher offer because they will renovate over time and don't have to worry about margins.”

Miles-Crocker continues, “An investor will only offer so much for a property because they want to make a specific profit when it's flipped.”

Seasoned real estate investor Jean Norton says a higher offer can be the most effective strategy. “Offer a higher price for the property,” she says, “Interest rates are so low that the monthly impact to their budget is negligible.”

4. Shop Government Foreclosure Properties

Investors don’t always have the advantage, because government-backed programs give preference to individuals and families who plan to live in the home they buy.

A number of government-run websites feature foreclosure houses that are owned by the agencies and entities that backed the loans: the VA, USDA, FHA, Fannie Mae and Freddie Mac.

When these houses are put up for sale, owner-occupant buyers have several days to get their offers in and buy without competition from investors.

You can also shut out investors by seeking condominium communities that have reached their maximum allowable rental units.  Many HOAs limit the number of units that can be rented out or held by investors.

Once the community reaches that limit, sellers can only accept offers from owner-occupants.

Verify your new rate (Jan 16th, 2018)

5. Don’t Be Afraid To Get Personal

It can help to make a personal connection with sellers.

Look them up on a social media platform or search engine.

See if you have interests in common or mutual friends. If you do, ask a friend to put a good word in for you.

Some agents recommend writing a short note with your offer, complimenting the home and mentioning how you will use it.

For instance, a seller might accept a non-cash offer from a family that plans to live there, instead of an investor who plans to gut it and flip it.

Sentimentality can go a long way.

Something as small as a common interest can work too.

  • My nine-year-old daughter’s favorite color is pink, and she loved the pink bedroom
  • Love your garage. I also drive a Jaguar and want to keep it out of the snow
  • We noticed you are Cubs fans too. Hoping for a great 2016

Don’t underestimate the power of human connection when buying a home.

Verify your new rate (Jan 16th, 2018)

Think Long-Term

Winning isn’t everything. It’s easy to get caught up in a bidding war, wanting to beat everyone out no matter what.

However, investors buying and selling 50 properties a month can afford to pick up an occasional clunker.

You, on the other hand, don’t want to buy a mistake you’ll have to live with for the next ten years.

Set an upper limit on home price, and be sure to add in estimated costs of repairs if the home needs them. You need this purchase to make financial sense for the long run.

What Are Today’s Rates?

As a financing home buyer, you have access to ultra-low rates and generous loan programs. Get pre-approved and be ready when you see the perfect home.

Get a rate quote now. No social security number is required to start, and quote requests take just minutes to complete.

Verify your new rate (Jan 16th, 2018)

Gina Pogol

The Mortgage Reports Contributor

Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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