Even though all-cash buyers are becoming more scarce, cash sales still make up a significant piece of the market.
Cash buyers – those who don’t need any financing – bought one out of three Californian homes in the first quarter of 2014. If you are like me, you don’t have that much cash at your disposal. So how does someone stay competitive without cash? Here are some ideas for competing with cash buyers.
1. Don’t Low Ball
Cash buyers expect something in return for their all-cash investment—a deep discount off the list price. An offer that is deeply discounted off the list price is referred to as a “low ball” offer.
While speed may be important to some sellers, most will care more about how much money they will net at closing. A two to three percent higher offer will likely seal the deal, regardless of whether it’s cash or financed.
2. Get Pre-approved
Unlike pre-qualification which gives you a ballpark figure of how much home you can afford, pre-approval is an actual credit decision. It tells the seller that you have a solid loan offer and that the bank has done its due diligence – credit checks, income verification and so on. If you can’t write a fat check at closing, pre-approval is the next best thing.
3. Remove the Financing Contingency
This strategy is risky and not suitable for every buyer. Removing the financing contingency means your earnest money deposit is at risk if you can’t close on the deal. Your earnest money deposit is typically 1% to 3% of the purchase price and is credited towards your down payment.
Talk to your loan officer to make sure that your financing is in order before you make the offer. Also, sellers like names they can trust. If the seller or the listing agent recognizes the lender’s name, it may give you the competitive edge. Some banks have a bad reputation, so ask around to learn which bank is reputable in your area.
4. Compete on Terms
You can’t compete on cash, but you can make the rest of your offer straightforward and simple. Try offering as much earnest money as you can afford (no more than 3%), paying the seller’s closing costs or agreeing on a short contingency period (17-21 days is the norm). If you want a seller to pick you, you have to give him the cleanest deal possible. That means no hidden costs, no hidden small print and nothing that could waste the seller’s time.