Competing with All-Cash Offers

Here’s How a Seasoned Real Estate Investor Says You Can Compete with All-Cash Offers

byBARBARA BELLESI ZITOpublished APR 17, 2022

Image: Stockvault.net

Cash is king in real estate, which is bad news for many first-time home buyers trying to break into this super-competitive market. An all-cash offer — even when it’s lower than asking price is often more desirable to a seller because it cuts the lender out of the equation for a much faster closing.

Ryan David, the owner and lead investor at We Buy Houses in Pennsylvania, understands that investors with cash can be viewed as “unscrupulous” by some. Every industry has its scam artists, David says, but underhanded or low-ball offers for homes is not what his company is in the business of making. In fact, he says it’s credibility that’s really king.

“Credibility is so precious [in the real estate industry] that a cash offer is actually usually a very fair offer,” says David, who notes that any offer his company makes is based on careful market research and analysis of comparable property in the area.

David and his business partner also run a free local real estate club that meets monthly. They invite investors, real estate agents, and homebuyers to discuss the local real estate market and get answers to their questions about buying real estate. He makes it his business to help educate others about the homebuying process. Here’s what David advises you to do to make your home offer more competitive.

Offer more earnest money.

Earnest money is the cash a buyer provides when they make an offer on a home to show that they are, well, earnest about the purchase. Sometimes called a good faith deposit, it serves to protect the seller from losing money in case the buyer backs out of the deal and they must re-list the home.

Your earnest money should be around one to three percent of the purchase price, but David advises to put more down, if possible, to sweeten the deal. He suggests tacking on 10 percent more to whatever your deposit would have been; for example, if you were going to offer $5,000, offer $5,500.

“You’re only going to end up paying that money at closing anyway,” David says. “If you do it upfront, sometimes it can look like you’re more serious, and that can carry weight with [the seller].”

Credit: Nicole Morrison

Apply for a VA loan, if you qualify.

It’s not always necessary or even advisable to put 20 percent down on a home, especially when that much of a down payment would leave you strapped for cash should you need to make any repairs. But this is a fiercely competitive seller’s market, so coming in with a lower down payment might not bode well for you when there are all-cash offers on the table.

There is a solution, though, for buyers who qualify: VA loans. Homebuyers who are active military service members, veterans, or their survivors have a fighting chance against all-cash offers if they can score this type of loan, which is guaranteed by the Department of Veteran Affairs. This loan program requires no money down on a home and doesn’t require mortgage insurance, yet its secure backing can go a long way in assuring a seller that a home sale transaction will indeed happen.

Appeal to the seller.

This tip has its fair share of controversy, as fair housing advocates frown upon buyer’s “love letters” to sellers. Many people, including members of the National Association of Realtors, feel that it opens up buyers to discrimination if they mention religious affiliation, family status, sexual orientation, or any other personal information that falls under the protection of the Fair Housing Act. In fact, the state of Oregon attempted to outlaw such letters, but there is currently a block on that ban.

However, if you are inspired to put pen to paper and tell the seller why you’re best suited to be the next owner, David suggests focusing on a neutral topic that doesn’t pertain to money or any of your own personal details. For example, if the seller has a beautiful yard and you happen to have a green thumb, tell them how you’ll make it your mission to maintain that magnificent landscape. While a strong offer is paramount for many homeowners, knowing that their cherished home is in good hands for years to come could put your offer out front.

Patience is a virtue when it comes to buying a home. It’s hard to set your sights on a home only to have it snatched away by another buyer. Perhaps one of these tips will help you close the deal on a new home soon.