
The San Francisco Bay Area is not only very competitive in the real estate market but also, in fact, 25 percent to 40 percent of sales have been recorded with all-cash buyers. Thus, securing a deal becomes very difficult for the financed buyer. So, what is the strategy and tool that aids you in crafting a competitive offer, even against cash buyers?
Why All-Cash Offers Attracts
To understand why cash offers lead the market, realize the appeal from the seller's view. Cash buyers pose less risk because they do not have a loan approval process on which to depend. Deals can close very quickly, sometimes in days, and there also is less of a chance funding issues will cause a sale to fall through. In a world where sellers will nearly always always desire certainty, a cash offer certainly provides that.
Yet cash buyers often use their advantage to make lowball offers hoping that the quick closing ability will offset the difference in price. For example, while a cash buyer might offer $900,000 for a home, a financed buyer offers $920,000. If the financed buyer can assure the seller that he can close the sale almost as quickly and with virtually no hurdles, that extra $20,000 can make all the difference.
Reproducing the Advantages of an All Cash Purchase
All those cash buyers can be defeated by making your offer as close to a cash offer as possible. Now, it's impossible to duplicate the simplicity of a cash transaction, but in several ways you can make your offer more attractive.
Use a solid pre-approval:Â In order to get a competitive offer in the first place, you want to ensure that you have an underwriting-pre-approved pre-approval. This not only indicates to the seller that you are a committed buyer with the wherewithal to close the deal, but credit-approved, underwriting-pre-approved as well, meaning it decreases the uncertainty of your securing a loan. This clears the mind of the seller that he does not have doubts left and puts your offer more positively in front of him or her as compared to cash buyers.
Fast Escrow Closing: Among the several advantages that a cash buyer can offer, the fastest escrow closing is sometimes within a period of 5 to 10 days. To match up with this offer, you need to liaise with your lender and assure him or her to guarantee you will present him with a fast escrow closing ideally within the same time frame. Some loan programs allow you to have a 10-, 12- or 14-day close of escrow, which may reduce the time gap between financed and cash offers significantly. This will also reassure the sellers that they can close faster on your offer as compared to other financed offers, and thus makes your offer more competitive.
Waive Contingencies: Another possible approach to making your offer more attractive is to waive contingencies. By satisfying your underwriting before an offer, you'll be able to present confidence enough with the loan’s final approval. This is how the seller would be well-assured that the deal won't fall apart because of loan issues. It is common to waive the inspection or appraisal contingency, though there will definitely be risks and you should discuss all of those with your agent and lender prior to submitting an offer with no financing or appraisal contingency.
Communicate the Strength of Your Offer: Cash buyers generally think that their offer is a much better one, even if it's lower in price. As a using-financing buyer, you position yourself very strongly when your agent can clearly state the benefits of your offer and point out that even though you are relying on a loan for acquisition, your underwriting is complete, your financing is secure, and you will close quickly. He may well be lured by the higher offer, especially if it is closed as quickly as the cash deal does.
Cash Offer Programs
There have been several programs over the past few years designed to help financed buyers compete with all-cash offers. HomeLight's Cash Offer Program is one such program. It allows buyers to submit a cash offer while still obtaining financing for the home. The program works by allowing HomeLight to purchase the home in cash. Then, the buyer finances the home afterwards and buys from HomeLight.
While helpful, there are certainly challenges associated with these programs. They include additional fees and indirect complex processes that may not be so appealing under certain circumstances. The problem is, such programs can also result in some restrictions. For instance, they may not be applicable to certain types of property, such as condos, or have a required timetable. While they may make sense for some buyers, they certainly are not a silver bullet and will not necessarily work in every circumstance.
Final Thoughts: Competition Without All Cash
It is difficult to compete with cash buyers when it comes to offers in the midst of a highly competitive market, such as that found in the Bay Area. Therefore, building a good working relationship with your lender is important. Counterbalance an all-cash offer by waiving your contingencies and having quick closing times, being ahead on accurate pre-approval, and thus present an offer just as attractive or even more attractive than a cash offer.
Cash offer programs are also something to consider, of course, understanding that they bring along their challenges. At the end of the day, though, in a cash-heavy market, making a competitive offer is all about reducing uncertainty for the seller and putting some outstanding terms into your offer.
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