How to Make a Cash Offer - Or Compete Without

If you’ve been looking for a house this season, especially if you’re a first-time buyer, it’s rough going out there. A lot more people are looking for first homes than there are first homes to be had.

Many of the properties on the market are foreclosures, not especially ready to move into, and banks don’t have any emotional attachments to the homes they are trying to offload.

This all makes it a tough market. And that’s before we get into the dreaded cash offer buyers. You know what I mean: you’ve fallen in love with a house, you’ve got your offer ready to go, it’s a strong offer, and you’re very hopeful.

Then your realtor tells you there was a cash offer on the table and you figure your offer has no chance. Who is making all of these cash offers? And how can regular home buyers ever hope to compete?

Depending on what area you’re looking in if it’s an area experiencing fast growth or a lot of new construction, the cash offers most likely are made by investors. It could be your area is about to experience a facelift or it could be investors hoping to rent homes after a quick renovation. With a market on the upswing and interest rates predicted to rise, investors are also eager to take advantage of the situation.

So how on earth can a regular person come up with $100,000.00 plus in cash?

Of course, if you receive an inheritance or have equity from a previous home, real estate is a good investment and you can certainly put that cash into a cash offer. But most people in this position don’t have those things. Here are a couple of ideas:

  • Short-term borrowing. One thing you can do is borrow from a family member or close friend for a short-term loan. You can always obtain a mortgage on the house once you’re in possession and use it to repay your family.

  • There are ways to borrow short-term from your retirement accounts penalty-free. If you have an IRA, look into short-term borrowing and paying it back with the above-mentioned method.

However, remember that not all offers are genuinely cash offers. It’s not everyone who has the funds in the bank, certified, and non-refundable earnest money to prove they have a cash offer. What this sometimes means is that the buyer’s offer is one without a financing contingency. Here are some ways to compete against cash offers:

  • Remember that a cash offer is often lower. They are looking for a bargain and to make a quick turn-around to sell or rent that house. Put your best foot forward in any way you can. You can ask your lender to write not only a pre-approval letter but include any financial information you are comfortable with them sharing that would make you a more attractive buyer. Have your lender go through as much of the loan process as you can without actually buying the house. Send the lender a preliminary title report, if you can. Fill out any condo or HOA questionnaires ahead of time. Then let the seller know you’ve done those things.

  • Shorten the loan approval time as much as you can by asking the lender for a quick appraisal, or ask for an appraisal in advance. If you’re working with a smaller lender, this can sometimes be done.

  • Do a quick inspection - in and out right away - and let the seller know you won’t be asking for repairs for anything minor. Or, even better, that the sale will not be contingent on the inspection.

  • Don’t try to get a deal. Now is not the time to bargain. Know your limits, yes, but be willing to put your best offer on the table up front. If you need time to amass a bigger down payment, that might just do the trick.

  • Find out what the seller needs or wants, in terms of time concerns, closing dates, title companies and more. To the best of your ability, give the seller what he wants.

  • Personalize your offer. It might not make a difference if you’re buying a bank foreclosure, but homes are emotional for people. If that older couple has the chance to sell to a young family wanting to raise their kids in that house rather than an investor who’s going to tear it down or remodel it right away, they might just take notice. In any case, a letter introducing yourself can’t hurt. It might be the one thing making you stand out if you don’t have 100K on hand.

Take Away

You might be able to think creatively about offering cash. Take a minute to look at the assets you have available to you. But you also might not need to offer cash in order to beat out a cash offer.

If you have any questions, please give us a call. We would be happy to help!

248-348-7200