In many real estate markets today, there’s a lot of talk about cash buyers. These buyers have a reputation for swooping in and “stealing” homes out from under other buyers, simply because someone with cash doesn’t need a loan. Regular buyers relying on credit are often intimidated by what appears to be a “lose-lose” situation. They assume that if they need a loan, they can’t compete.
The truth is, someone buying a home with credit can still compete against cash buyers and win. Do you have a 20 percent down payment? Are you well employed? Do you have cash reserves in addition to your down payment? Do you have very little debt? Do you have good credit? If so, your purchase should be as bullet-proof as a cash buyer’s.
Here’s what you need to do to compete against a cash buyer.
Structure your offer as if it’s a shoo-in
Ask your lender to write not only a pre-approval letter but to verify that you’re a well-qualified buyer. Get your agent or mortgage professional to provide some financial information about you with your offer (if you’re OK with that, of course).
See if your mortgage professional can take it a step further. Have your lender take as much of your loan through the process as possible. Send the lender a copy of the preliminary title report, if available. If you’re buying a condo, find out if a condo questionnaire is available and give it to your lender. If you take any of these steps, let the seller know.
Shorten the loan and appraisal contingencies
Ask your lender how quickly an appraiser can be sent out to the property and how long the loan would take to turnaround. In some parts of the country, loans are being approved in less than 14 days.
Pre-order an appraisal
This may not be as easy with a bigger bank. But smaller banks, direct lenders or mortgage brokers can line up the appraisal in advance. At the time your offer is written, tell the seller the appraisal has already been ordered.
Have the inspection immediately
Along with the quick appraisal and loan contingencies, get your inspector in and out. Shelling out a few hundred dollars and getting the inspections done within days of having your offer accepted shows the seller you mean business.
Paying more money to beat a cash offer may sound counterintuitive, but cash buyers nearly always expect a discount from the seller simply because they’re offering cash. As a result, the cash buyer will often make a lower offer. To increase your chances, top the cash offer.
If a seller is faced with a few thousand dollar difference, the seller probably wouldn’t risk it. But what if your offer is 5 percent higher than the cash buyer’s? The seller, perhaps wanting the best of both worlds, may ask the cash buyer to raise his or her offer. Some cash buyers will come up, but not always enough to match.
Bottom line: Stay in the game and know your limits. Do you plan to live in the house for many years and it’s the home of your dreams? Overpaying isn’t the end of the world, so long as you’re within a reasonable range.
Make yourself known to the seller
Some buyers write “love letters” to the sellers, hoping to appeal to their personal side. Does this work? Sometimes. If you’re competing with a cash buyer, particularly an investor who plans to rent the home out, it can’t hurt to get a little personal.
When a seller’s agent presents an offer, the seller always wants to know more about the potential buyer. Ask your agent to write a cover letter and an introduction. Let the seller know who you are, why you like the home and what your intentions are. It usually works.
But not always. Sometimes a seller just doesn’t want to take a risk with someone getting a loan, and nothing you do — aside from paying all cash — will change that. So do the best you can and be realistic. Make sure your financial “‘house” is in order. Work with a good local real estate agent and start working with a local mortgage professional well in advance. Structure your offer to show that you’re ready to roll. And who knows? It just might go your way.