If you really, really want the house, here’s how to play ball.
The old adage “money talks” rings true in real estate. After the stock market crash in 2008, homebuyers with all-cash offers quickly became sellers’ most sought-after suitors. All-cash, after all, means no mortgage, and no loan means no need to rely on lenders. So now that the market has heated up again, bidding wars are the new normal, from Alexandria, VA, real estate to homes for sale in San Angelo, TX. Unfortunately, it’s common for a seller to favor an all-cash offer over an offer from a buyer whose deal hinges on a mortgage approval.
“If you’re shopping for a home, there’s a good chance you’ll be competing with all-cash offers,” says John Lazenby, president of the Orlando Regional Realtor Association. “As of February 2014, 43% of all offers were all-cash! Couple that with the fact that it’s a seller’s market out there, and it can be very difficult — and competitive — to get the house you want.” So what’s a homebuyer to do? Here are seven ways to compete with all-cash buyers in a seller’s market.
1. Put your best foot forward
Don’t wait to submit your best offer. If you want a specific house and it’s a competitive market, you need to put in your very best offer first. “Assume that you will not have the opportunity to negotiate on price, so make your best offer upfront,” advises Lazenby. Adds Ross Anthony, a real estate agent with Willis Allen Real Estate in San Diego, CA: “If you are afraid of overpaying for the home, make sure you look at the current appreciation rate for the market. You may pay a little extra today, but if prices keep increasing and you keep getting outbid, you may find yourself priced out by the end of the year or paying significantly more for the same property anyway.”
2. Go a little higher
The highest offer doesn’t automatically mean a sale — but in many cases, it can’t hurt to inch your price up a bit, says Anthony. “It sounds obvious because it is, but this is often the most important thing to consider when offering on a home in a competitive seller’s market. More often than not, cash buyers are investors and investors want to increase their margins as much as possible by getting the property for as little as they can,” he explains, and that gives you a little negotiation power. “You must understand that in order to make your offer more attractive, you will most likely have to beat out the competition on price. Make sure your agent takes a close look at the comparable sales and can justify the purchase price, but also adjust your expectations of getting a home for less than it’s worth. Sometimes as little as an extra $1,000 on top of the list price can be the determining factor in the seller’s eyes.”
3. Find out the seller’s terms
“When telling agents that I might be coming forward with an offer, I first ask them what terms the seller is looking for,” explains Heather Witt, a real estate agent with Partners Trust in Los Angeles, CA. “Does the seller need extra time in the property to find a new home to live in? Are they looking for a quick close? Do they want to control who processes escrow and title? Do they already have those services picked out so that I might write an offer that won’t need to be countered?” Having a real estate agent who can handle this early negotiating on your behalf can mean the difference between landing a home and losing it.
4. Be flexible
“In any market, the buyer who is financing must be creative when up against all-cash buyers,” says David Dubin, a real estate broker with Douglas Elliman in New York, NY. One key to creating a winning offer? Emphasize your flexibility. If your agent can find out the sellers’ desired terms, you can sweeten the deal by letting the sellers drive the timeline and some of the specifics. “The more flexible and accommodating the buyer is, the more a buyer’s bid will pique the interest of the seller,” says Dubin. Simple things such as being accommodating with the closing date, offering to rent the house back to the sellers while they continue to hunt for their new home, or requesting minimal repairs can go a long way when competing with an all-cash offer.
5. Be thorough
“If you have already done your homework and know the seller’s specific needs, make sure every ‘i’ is dotted and every ‘t’ is crossed in your offer,” says Ross Anthony. “The fewer items that the seller will have to include in a counteroffer will make them more likely to sign and accept your offer.” Don’t forget to include things such as an updated pre-approval letter. You could even offer “to put them in touch with your lender if they would like added assurances of your ability to follow through with the purchase,” adds Anthony. “If the lender is confident and can convey this to the seller, it will help put their mind at ease.”
6. Show some personality
“I always recommend my buyers write a sincere letter to the seller to include with their offer that shows a genuine love and interest in the home,” says Anthony. “If you are just starting your family and let them know you can already imagine your future children playing in their beautifully manicured yard, then the seller is likely to imagine this too. Tug at their emotional heartstrings! Some sellers may not take this into consideration at all, but it certainly can’t hurt your chances and it takes very little effort.” Whatever you do, make sure your offer letter is memorable so that it will stand out from the crowd.
7. Throw in the “as is” offer
What could be more attractive to a seller than an offer that states the buyer will take the home “as is”? “Putting in an offer that says you’ll buy the home without asking for any repairs or any extra money to fix something that pops up in inspections can make a noncash offer way more alluring,” explains Anna Marie Simpliciano, a real estate agent with Hilton & Hyland in Beverly Hills, CA.