How to beat an all cash offer on a house

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Can mortgage borrowers compete with cash offers?

About one in four homebuyers are making cash offers in today’s real estate market.

These cash deals offer surefire money and a quick close, which can be tempting for eager sellers.

Unfortunately, not everyone can afford to shell out hundreds of thousands of dollars in cash up front. The majority of buyers (especially first-time home buyers) rely on mortgages to finance the purchase of a home.

But if you’re in this boat, there are still ways to compete with even the most cash-rich buyers. Here’s how.

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7 tips for competing with an all-cash offer

It’s no secret that the housing market is on fire. Indeed, according to the real estate brokerage red fin, a whopping three-quarters of buyers are facing a bidding war these days.

To stand out from the crowd, many buyers (25%, in fact) make cash offers.

Offering all the cash can certainly get sellers’ attention, but there are other ways to sweeten the deal if you’re using a mortgage.

Here are a few that can help you beat the competition:

1. Get your mortgage approved

Get mortgage pre-approval before trying to make an offer on a home is a must.

Many mortgage lenders offer fully subscribed pre-approvals, which means your credit has been checked and your finances have been checked. It’s basically a “green light” for your mortgage, except you haven’t found a home yet.

With these types of pre-approvals, you can give sellers confidence. Even with a financing contingency in your contract, they know you’re a safe bet to buy their home and follow through on.

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2. Give up contingencies

The easier you make things for the seller, the better. And give up contingencies? It’s one of the best ways to do it.

This may mean giving up:

  • Unforeseen funding: Waiver of this contingency means you can’t go back on the deal if your mortgage fails
  • Inspection contingency: This allows you to have the house inspected before buying it
  • Sale condition : This is for existing homeowners only and states that you must sell your existing home before proceeding with the purchase. (This is also one of the least attractive contingencies for sellers)
  • Valuation contingency: This allows you to back out or renegotiate if your rating is low

Keep in mind that giving up contingencies is risky.

Waive inspection could mean missing out on underlying issues or repairs on the property, while foregoing your appraisal contingency could mean paying a lot out of pocket if the home doesn’t appraise high enough.

Be sure to speak to your officer about the risks and benefits of waiving the contingencies if you are considering this.

3. Increase your earnest money deposit

serious money is essentially a bona fide filing. He reserves your right to buy the house, and if you cancel your contract without reason, the seller can keep it.

If you really want to stand out, increasing your earnest money deposit is a great way to do it. This shows the seller that you are serious about buying their home and are ready to put your hard-earned money into it.

4. Bid higher than asking price

Often, cash buyers offer offers below the asking price, mainly because of the ease of their transactions. If you’re faced with a cash buyer who doesn’t respect the seller, going above the listing price can be a way to set yourself apart.

You can also consider including an escalation clause, which increases your bid automatically if someone outbids (up to a certain threshold, of course).

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5. Include a Valuation Difference Guarantee

In today’s warm market, it’s quite common for valuations to be low. Naturally, this worries the sellers (they don’t want you to withdraw the deal if the home valuation is low).

To allay these fears, you might consider adding a valuation difference guarantee to your offer. This tells the seller that you will cover any discrepancy between the offer and the appraised value.

This is usually only an option if you’ve saved some extra money aside from your down payment. Covering a valuation gap would mean paying extra above and beyond the money you deposit with your lender.

6. Be personal

You can also write a personalized offer letter to the sellers detailing what you like about the house and why it’s a perfect fit for your family. Some buyers even include photos of their children or pets.

It’s a good way to differentiate yourself from other buyers and really touch the hearts of sellers.

7. Consider an alternative to the cash offer

Some companies offer cash-to-cash solutions that don’t actually require upfront cash.

The ribbon, for example, allows you to pay 1% of the house price (so $2,000 on a $200,000 house) and then back your offer with cash.

There are also other similar options including Accept.inc, Homeward, etc. Big brands like Opendoor and Homelight even have cash offer programs.

The bottom line

Cash buyers are commonplace in today’s real estate market, but they are by no means invincible.

Talk to your agent, get pre-approved from a mortgage lender, and start looking for a competition-ready home.

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