In January, 33 percent of existing-home sales transactions were all-cash purchases, according to the National Association of Realtors. Many of these cash buyers are investors, but an increasing number are move-up or first-time buyers who know they’ll get a better deal with cash if they can figure out a way to raise the money.
Sellers like cash deals. Unlike buyers who are financing their purchase, cash sales don’t require appraisals (although buyers should want to have one completed to ensure they aren’t paying too much), which can come in so low that they may delay the sale or even kill the deal if the buyer can’t come up with the difference. Plus, with a cash transaction, there’s no risk of the deal falling apart because a buyer couldn’t get financing. Some sellers will even reduce the price of a home if a buyer is interested and willing to pay in cash.
If you need to finance your home, you could be at a disadvantage—especially in a competitive market with lots of cash sales. But what can you do if you don’t have $500,000 lying around?
Real estate tips: Making a strong offer
Even if you’re financing your home, you can prevail if you make the strongest possible offer. Here are some battle-tested tips:
1. Prove you are just as qualified to buy a house as a cash buyer. When submitting an offer, you must prove that you have enough money to close the transaction. You will need to provide an account statement that shows the source and amount that is available to pay your applicable closing costs. Show that you have more than enough cash available for the down payment should you need to increase it due to a low appraisal.
If you are receiving a gift from a relative, you will need to have a gift letter from that family member, in addition to the account statement from which the funds will be transferred. Include a pre-approval letter from your lender that includes a maximum amount, your FICO scores, and critical information such as your debt-to-income ratio (DTI) and loan-to-value ratio (LTV) to show you are a great candidate.
2. Make your offer clean. The more you ask from a seller, the less likely it is that he or she will accept your offer. Don’t ask for closing assistance or a home warranty if you have any reason to believe you are in a competitive situation, such as one where multiple offers have been made on the property. Don’t make the deal contingent on the sale of your home, and don’t ask for appliances that don’t convey like washer, dryer, or stove unless you are willing to pay for them. Look the house over carefully and think about agreeing to accept the property “as-is” without any home warranty or repairs.
(Buying a home? Click here for the five things every homebuyer must do)
3. Make your offer sweet. Add value to your offer in ways that don’t cost you a penny but may save the seller some bucks. For example, can you shorten the closing date to ten days if the seller is in a hurry? Conversely, if the property is owner occupied, a longer escrow whereby you will assume the property three days after the close of escrow may be preferred. Some sellers may want to rent back after closing. Are you flexible enough to delay your occupancy by several months?
4. Play the emotions card. Every family that has lived in a home more than a few years develops an attachment to it. When the time comes to leave, they often want to know that it will be well taken care of and that they might be invited back now and then to visit. Is there a garden that has been a labor of love or a special room that’s important to the family? In your offer letter, promise to take care of the places that were so special to the sellers’ family as well as the property as a whole. Include an invitation to visit. Congratulate them on the wonderful job they have done taking care of the property and promise to do so as well. The emotions card is something no investor can play.
In today’s environment, don’t take anything for granted when you’re making your offer on a home. If you can show that you are just as qualified as a cash buyer to buy the house, you may be able to level the playing field. Work every angle you can to make it very hard for the buyer to choose someone else.
Steve Cook is executive vice president of Reecon Advisors and covers government and industry news for the Reecon Advisory Report. He is a member of the National Press Club, the Public Relations Society of America, and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate companies, financial services companies, and trade associations, including some of the leading companies in online residential real estate.