4 Things to Know About Competing with Cash Offers

There's a shortage of homes for sale, and that means that cash buyers have an advantage a lot of the time. They're more flexible, they can act more quickly, and sellers really like that. Here's some tips for competing with cash offers. Okay, so look, cash buyers, they're kind of like the apex predators of the home buying ecology, but if you need to get a mortgage to buy a home, you still have ways to feel confident. The main thing you can do is have your agent contact the seller's agent and just ask, what are the motivations, what are the priorities for this seller? But that's not all. When you go through that house, just kind of look around. You can kind of tell by intuition sometimes what is motivating that seller. Maybe you just sort of get an intuition, oh, I think that there's a divorce behind this, or it looks like these folks are relocating, and maybe they need to move really fast. So just keep your eyes open, keep your ears open, have your agent ask the other seller's agent. The key to competing against cash offers, and heck, all the other buyers, is to find out what is motivating the seller. What does the seller need? Here are four different seller motivations that you can use to tailor your offer. Number one, price. Of course, this is the most common situation you're going to face, where the seller is just looking for the best price possible. Here's the deal, though. A lot of cash buyers, they're looking for bargains. A lot of them are investors, and they're just looking to pay the lowest price possible. So the way to compete against that is to make your best, highest price offer. Just figure out, essentially, what's the highest you're willing to pay for that home, and make that your initial offer. Now, you can also do something called an escalation clause that basically says, here's my offer, and if someone beats it, then automatically I'll pay $2,000 more than that, up to a certain limit. But those get really ungainly and complicated if there's multiple people with escalation clauses, and nowadays, that's going to happen often. So really, your best bet is just go ahead and just say, what is the maximum price I'm willing to pay for this home, and then make an offer at that price. Number two, close quickly. A lot of sellers are just in this situation in life where they just want to get out of that house. Maybe they're divorcing. Maybe they're relocating. Maybe it's an estate sale. So as a buyer, you can kind of take advantage of this by making your offer appear as a cash offer. It can be a little bit risky. So what this entails is waiving your appraisal and mortgage contingencies. How do you do this? Well, first of all, you get pre-qualified for that loan. Make sure the lender knows everything there is about you financially, and so that the lender feels really solid that you're going to be able to get a mortgage for a home at your price range. Also, talk with your inspector and make sure you have an inspector basically on call. Someone who can get there within three or five days and get you that inspection report. This strategy is best employed when you're not stretching yourself financially and basically spending all the money you have for the down payment. The reason is, first of all, the bank is more likely to approve a loan if you're not maxed all the way to your financial capacity. But also, if the home appraises for a little bit less than you're paying, then you would have to pay that difference in cash. So it's nice to have kind of that cushion of cash in your bank account in case you need to make up that difference. Number three, flexible on move-in. Sometimes you buy from a seller who isn't ready to move out yet. Maybe they haven't bought their next house or maybe they have, but it's not ready for them to move into. So what you can do is you can offer them a rent back, which means that basically they get to stay in the home after closing. When you can offer that kind of flexibility, it really gives you an edge over cash buyers who are in a hurry to close on that loan and get that seller to move out. Number four, don't want to deal with repairs. Some sellers, they just don't want to bother with repairs. They don't want to pay for repairs. So what you can do is you can just offer to buy as is. Now that doesn't mean waiving the inspection. You should get an inspection, but what you're saying to the sellers is, I'm going to get it inspected and once that happens, I'll give you a yes or no answer. Yes, I'll buy it. No, I won't buy it, but I'm not going to ask you to pay for repairs or supervise repairs. And that is a pretty good way to compete because a lot of cash buyers are offering the same thing. You often will combine this strategy with the fast closing strategy because a lot of these sellers, if they don't want to do repairs, well, they already have one foot out the door and they want to get out of there quickly. We've been talking about four strategies, but you can combine them. And basically what it comes down to is listening to that seller. What are their needs? What are their desires? How can you solve their problems and make an offer that stands out? So here's some examples. Let's say the seller is squeezed financially. Well, you might want to make that top dollar offer, but also say that you'll buy as it is so they don't have to pay for repairs. Or maybe the sellers are divorcing. They want to close right now, but they want to have three days to move out so that he can move his stuff out Saturday. She can move her stuff out Sunday and they don't have to cross paths. The key is to listen to those sellers, really pay attention to their needs and be creative. I'm Holden Lewis, mortgage and real estate expert for NerdWallet. And here's a fun fact. Not every cash buyer is rich. A lot of them have sold their home and so they have the cash proceeds on hand to spend on their next home. If you enjoyed this video, give it a like and please subscribe. See you next time. Bye.