In markets where all-cash offers are common, it can be easy for buyers to become discouraged early on in their home purchase process. After all, how is an everyday buyer supposed to compete with a cash offer on a home? Most of us don't have several hundred thousand dollars lying around that we can use to buy a house, after all.
But buyers in cash-offer-heavy areas should take heart because there are ways they can compete with those all-cash folks and come out ahead -- with the keys to the home of their dreams. If you've found yourself losing out to all-cash offers and you want things to change, consider one (or all) of these tactics.
Make sure you're pre-approved
A pre-qualification to buy a house is just not enough when an all-cash offer could be on the table. Sellers want to make sure that any offer they accept will go the distance to the closing table; just like it's frustrating for buyers to lose a home to a better offer, sellers do not enjoy having to re-list their home because financing fell through and the buyer turned out to be a dud.
It's a bigger process requiring more documentation and due diligence to secure pre-approval than to get a pre-qualification, but in a market where you're competing with all-cash offers, a pre-approval is an absolute necessity -- so don't skip it!
Consider underwriter loan review
There's another possible way to show sellers that you are eminently qualified to buy their home: Get a loan review from an underwriter. One big reason why sellers like all-cash offer so much are that they know there's a much smaller likelihood that there will be a problem in terms of financing. A lot can happen in the process of securing a mortgage loan that can trip up buyers and delay or totally tank their home purchase, and with an all-cash offer, sellers know that they don't have to deal with any of that.
A big step in the home mortgage process is underwriting when an underwriter employed by the lender takes a fine-toothed comb to all your financial information and documentation to make sure everything is accurate and above-board. And you can get a loan review of your pre-qualification from an underwriter before you make an offer, which can help alleviate the seller's potential fears that the loan might not manifest for you.
Offer more than asking price
Here's the thing about all-cash offers: Most of the time, they're being submitted by an investor, usually a fix-and-flipper who plans on making cosmetic repairs to the house, possibly remodeling a room or two, and then selling the home for more than they paid for it. As a result, all-cash buyers don't always offer the full asking price for a home.
Sellers might still be inclined to take a cash offer because they close more quickly and involve fewer hoops to jump through, but you can make your own offer look extra enticing by offering more than the seller's asking price. From a seller's perspective, it might be better to wait a little bit longer to close and net more money instead of closing sooner for less money, so it's worth a shot to write an offer that's above asking price if you can.
Beef up your down payment
Another way to placate a seller when it comes to your qualifications for securing a mortgage loan is to put down a larger amount of money on the house; this will help the seller feel more confident that your loan is going to be approved and they'll actually wind up selling the house. It's not always easy for buyers to come up with a full 20% down payment, but if it's possible for you to do so, think about putting even more than 20% down on the home, and you could be successful competing with someone who's offering to buy the house for cash.
Submit your best offer upfront
A lot of buyers want to negotiate on price, and that's understandable; after all, buying a home is one of the biggest purchases most buyers will make in a lifetime. That said, the time to haggle over price is not when you're up against an all-cash buyer.
Don't waste the seller's time -- or yours -- by submitting a lowball offer first and hoping they'll counter, because if it comes down to your lowball (financed) offer or an all-cash buyer's lowball offer, the seller is going to go with the all-cash buyer every time. Instead, put your best foot forward by submitting an offer at the top of your budget, which might just do the trick for you.
Fork over more earnest money
Earnest money is money that the buyer pays to the seller when the contract is signed to show that they are "earnest" about buying the home; if the buyer backs out of the contract before closing, the seller usually gets to keep that earnest money (except for in certain extenuating circumstances).
If you can, write a big dollar amount of earnest money into your offer -- including some or all of your down payment, if possible -- to show the seller that you really are serious about taking this sale to the finish line. Most sellers are going to be swayed by getting a portion of their home's sales value upfront instead of having to wait until closing, so this can make you a serious contender against an all-cash buyer.
Meet the seller on their terms
One benefit of working with an experienced real estate agent is that you can use them as a liaison between yourself and the seller. It's quite common for a buyer's agent to call up the seller's listing agent and ask if there are any terms or conditions that the seller would prefer to write into the contract. Does the seller want to pick the title company? Is there specific timing for the sale or the move that might work better for the seller -- are they hoping to be out of the house by a particular date, for example? If the seller needs to find a place to live after selling the house, would it be worth a buyer's time to rent the house back to the seller while they shop, or even offer to give the seller a month or two of extra time in the house, rent-free?
Ask your agent to do some legwork and figure out what the seller wants (apart from price) that might help your offer stand out, then write those factors into the offer when you submit it.
Who doesn't like working with a flexible, easygoing person or household over someone who nitpicks and wants to argue every single point in a negotiation? The more you can present yourself as open to the seller's needs and willing to meet them where they are, the more likely it is that the seller will want to work with you as a buyer. If the seller hasn't expressed any preferences in terms of timing for the sale or other concessions you might be able to make, offer to leave those terms open to the seller's discretion; it'll make you seem like an ideal (and reasonable) buyer to many sellers.
Submit a pristine offer
Your real estate agent should be able to help you with this -- when you do submit that offer, make sure every detail is addressed and there's nothing in the offer that will require any back-and-forth between you and the seller, if at all possible. The cleaner your offer is, the better the seller will feel about signing it as soon as they read it (or soon thereafter), and then you'll be in business.
Expedite the appraisal and inspection
Cash buyers don't need to request an appraisal or inspection, but they are usually requirements for most mortgage loans -- still, there's a way you can put yourself on an almost-equal footing with cash buyers when it comes to the appraisal and inspection. Depending on your market and the availability of appraisers and inspectors, it might be possible for you to get those tasks completed early, especially if you're willing to pay a little bit extra for a rush job. Let the seller know that you're serious about closing as quickly as possible by making it clear that you will do whatever it takes to expedite the appraisal and inspection.
Write the seller a letter
Sellers who have lived in a house for several years -- especially through life milestones like getting married or raising a family -- are going to have some emotional attachment to their home. This is a distinct disadvantage to cash buyers who are investors planning to fix and flip the house, but if you're a financed buyer who wants to raise your own family in the house, that fact can pull on the seller's heartstrings and entice them to go with your offer over someone else's offer. Put your hopes and dreams for your family into a seller letter and ask your agent to submit it with the offer.
If you don't have a family, don't despair; there are plenty of other ways you can show some personality through a letter to the seller. Do you work in a community service-type job, such as a teacher or a police officer? Were you enlisted in the military at any point in your life? Are you a general contractor who can promise to keep the house in peak condition? Do you have any experience or certifications working with historic properties that might help the seller feel like they're leaving the home in good hands? Use your imagination and paint yourself in the best possible light in your seller letter; you might be surprised how far it can get you.
Waive negotiations over repairs
In most home sales contracts, the seller and buyer will negotiate over any repairs after the inspection takes place -- all-cash buyers might not even get an inspection, so sellers usually don't have to worry about repairs with the all-cash offers. You can give yourself a similar advantage by agreeing to handle any repairs yourself after the inspection and writing that into the offer and the contract.
This will mean that you're on the hook for those repairs, of course ... but that's not necessarily a bad thing! A departing homeowner might be tempted to cut corners and opt for the cheapest possible repair, but if you're tackling it, you can make sure the repair is done to the highest standards.
Bend over backward
By this point, you're probably getting the general sense that if there's any way you can ease the seller's path to the closing table, it's going to work to your advantage when competing with all-cash offers. Do your best to bend over backward in every possible way in your offer -- don't request any concessions, offer to pay for closing costs, and do whatever you can to make the sales and closing process as easy as you possibly can for the seller.
Shop government foreclosures
Sometimes the beacon of the all-cash buyer is too powerful to ignore in certain markets -- don't give up yet, because you still have options! Look at purchasing a government foreclosure in your area if you can; these properties will prioritize families and individuals who want to live in the home over investors when it comes to evaluating offers, and if you can put in a little elbow grease to fix your new house up, you may wind up with a customized home at a lower price.
Buy new construction
New construction can be another good option for buyers stymied by all-cash investors. A developer isn't going to be interested in lowball cash offers, and as an added bonus, you can get some rooms built or finished to your specifications with new construction.