Helping buyers with financing and limited cash seems a bit like entering a fight with Mike Tyson in the limited supply market of today. Losing a deal to a cash offer may not be as painful as taking a punch from Mike Tyson, but it still frustrates your buyers and adds to your workload. You have to choose whether to give up or devise a new plan after taking a few punches to the face.
Fortunately, it's not as difficult as many agents believe to beat a cash offer on a home. We'll discuss our methods for enhancing your offer by minimizing the drawbacks of financing and creatively addressing some of the seller's other possible issues. Here are the top ten strategies that, yes, even in this hot market, have enabled my team to outperform cash offers.
1. Employ Cash Lenders
One of the best ways to surpass a cash offer is to simply use a cash lender to convert your offer into a cash offer. Cash lenders will buy a home with cash and then permit the buyer to refinance or purchase the property after closing. This practice was born out of the need for mortgage purchasers to compete with cash buyers.
This is how it goes. A buyer can choose a home and Homeward will make a cash bid on it once they have been approved by a cash lender like Homeward Mortgage. After buying the property, the buyer rents it from Homeward until their loan is approved.
For this service, there is a fee. If the buyer utilizes Homeward Mortgage for their final loan, the fee—which is often around 2 percent—is waived. They also provide a "buy with cash before you sell" option for purchasers who have houses to sell.
2. Present Your Offer Quickly
It can be difficult to compete with financial offers, but never give up. Today, a lot of listing agents will wait three to four days after the property goes active before reviewing the offers. This makes it possible for more buyers to view the property, which increases the number of offers the seller will receive.
Some buyer's agents think that holding off on making an offer until the very last moment is the wisest course of action. Avoid doing this! We've discovered that submitting your offers as soon as possible is preferable!
There is nothing worse than learning the day before the offer deadline that the seller decided to accept an offer because they were tired of having to leave the house for showings. Consider it this way: If your buyer makes an offer, at least they will have a chance to compete, and if you heed some of my other advice, your buyer's bid might even succeed!
3. Provide A Sign-Up Bonus
Today, holding all offers over the weekend and presenting them all on Monday is a popular seller bargaining strategy. By pitting desperate purchasers against one another, the listing agent can raise the price even more. This strategy also raises the likelihood of receiving a cash offer that outperforms the competition.
Offering a "signing bonus" in exchange for swiftly accepting your buyer's offer is the best approach to get around this. Your buyer must put their best foot forward and present the "signing bonus" as the highest and greatest offer they can in order to be successful.
Suppose a home has a $400,000 list price and your customer is prepared to spend 10% more than the asking price. Structure the offer so that the sales price is $420,000, but if the seller accepts it within the next four hours, the sales price will be $440,000 rather than offering $440,000 and waiting until the weekend. Just for accepting your offer earlier, you'll receive $20,000 extra.
With this strategy, your buyer can submit their offer ahead of time, eliminating competition, and the seller feels like they received a fair price. A great win-win situation! The best thing is that the offer continues to be considered even if the seller rejects it, giving your buyer a chance to prevail.
But you need to do more than just give a signing bonus to succeed against cash offers.
4. Stand Out And Be Likable
Winning an offer is a contest—in the strictest sense. The offer is made by your buyer in opposition to all other purchasers. Therefore, you must be unique and likable if you wish to succeed against cash offers.
I'll deny it if pressed, but in the past, I've been known to assist courteous agents whose bids I liked in getting approved. On the other side, I have not offered to assist a rude or unhelpful agent. Therefore, if you wish to defeat a financial offer, kill them gently. Here are two quick techniques to make an impression on the listing agent and win their favor:
Leave Original Comment
You have a fantastic opportunity to set the tone while your buyer is considering a house. Mention how your customer enjoyed the house, the neighborhood, and how they could envision themselves relocating there instead of leaving the same old comments.
The merchant receives the feedback frequently directly. This is how they initially see your buyer's offer. Just be careful not to discuss anything about your customer that would violate Fair Housing laws.
Consider it a miniature love letter from a buyer minus the complications that can arise from such a letter.
Send a video introduction to the listing agent.
Next, make a brief video introduction to the listing agent in which you introduce yourself. (Fair Housing regulations prevent me from including footage of my clients.) Tell them you'll be submitting an offer and ask them to keep you informed of any status changes so you'll be aware of them.
The addition of these small details could be the difference between your buyer's offer coming in second or first!
5. Present A Valuation Gap
Due to the need for an assessment for mortgages, one of the main reasons cash is king in bidding wars. Sales prices are increasing because of bidding wars much more than we, as real estate brokers or appraisers, can actually justify.
The appraisal gap is the difference between the sales price and the lower appraised value. A financed buyer is contributing extra funds for the down payment and closing costs when they offer to cover any assessment gaps. The financed buyer can agree to bring in an extra $20,000 in the case that the property doesn't appraise, for instance, if a home is advertised for $400,000 and receives bids as high as $420,000.
Teach your clients to try to restructure their loan into a lesser down payment choice if they don't have the extra money for an appraisal gap. If that doesn't work, have them approach their parents or grandparents for help or even take a loan against their 401(k) to make up the difference if the appraisal turns out to be too low.
Keep in mind that they will only want this cash if the appraisal results are lower than the agreed-upon sales price, and that the deficiency amount is typically lower than the agreed-upon appraisal gap. Although this is a highly effective method, many purchasers now offer evaluation gaps. Therefore, you could need to use heavy equipment to win your offer.
6. Request That Your Buyer Cover Your Commission
Sometimes you have to bring the major guns when you are up against cash offers. The subject of commissions has long been contentious between buyers and sellers, and many sellers believe it is unfair that they must cover both their agent's and the buyer's agent's commissions.
How I Bested A Cash Offer Using This Strategy: With A Handshake!
My buyer recently agreed to pay my commission, therefore I was able to outbid the rival cash bids and win the bid on the house.
Only $30,000 was available to the client I was dealing with for the down payment and closing charges.
When I pulled up to the house, the first thing I observed was that the seller had selected a limited-service brokerage with a cheap flat fee for the listing service and a cooperative commission for a buyer's agent.
I was able to infer from this that the seller most likely didn't see the benefit of hiring an agency.
The seller was present while we saw the house, which made things even more awkward. Following the viewing, the seller approached the prospective buyer and inquired what her impressions of his house.
She replied with grace and said she adored the house. "Then you should buy it," he grinned. She told him that although she really wanted to, she was afraid that a monetary offer, which had just happened to her, would defeat her since he would receive several offers.
"Give me my asking price and pay his fee, and I will sell you my house," he answered, pointing at me. Without pausing for a second, she said, "OK!" We all then shook hands before they hugged one another.
I hurried to my car and wrote the offer with the handshake bargain in mind.
The buyer just had enough money left over after putting down 3.5 percent and having the lender pay the closing costs (using the interest rate spread).
The offer was prepared, signed, and delivered to the listing agent's inbox in less than 30 minutes. We already have cash offers for $20,000 higher than your offer, so why would we take yours, stated an irate listing agent when she called me right away. I joked, "Because we shook on it," in response.
After a little awkward pause, he declared that he would speak with the seller but would advise against accepting our offer. After a grueling two hours, I finally received a call informing me that the seller had accepted our offer. Was it because the buyer agreed to pay my commission or because he liked the buyer? She may never reveal herself to us, but she is currently contained in the house.
Since that time, I've effectively applied this strategy to set my offers apart from those of the competition.
7. Include A Clause Of Escalation
Escalation clauses frequently receive a poor rap. But when utilized properly, they are effective tools that let your buyers make their best offer without having to worry about overpaying in comparison to other competing bids.
For instance, there were six offers for a house I just sold. East of Denver in a little rural hamlet, this lovely four-bedroom, three-bathroom home was listed for $460,000.
One bid was for $500,000, two were for $480,000, and three were for less than $470,000. The highest-bidder had already sold their home (without a contingency to locate a new home) and needed to find a home as soon as possible or they would have to move into a rental.
They were in a tight spot and as a result of their predicament, they made an outrageous offer to guarantee they would win. They were unaware that the competing proposals were $20,000 lower than their own.
The buyer's representative may have submitted an offer of $475,000 with an escalation clause of $1,000 higher than any legitimate competing offer up to $500,000 to prevent the buyer from overpaying.
They could have saved the buyer a whopping $19,000 if they had done this since we would have accepted their offer at $481,000 ($480,000 highest competing offer + $1,000 escalation).
This strategy will undoubtedly put your buyers ahead of the competition, but it won't always prevail against cash.
8. Cover The Closing Costs Of The Seller
Sellers nowadays feel like they are being nickeled and dimed, despite the fact that this following technique will provide you an advantage when the offers are close. Ask a house seller, and they will tell you that even if they are receiving bids that are at least 10% above their asking price, it sounds absurd.
The seller typically foots the bill for escrow, title insurance, and homeowner association (HOA) fees in real estate transactions. There is no obligation on the part of the seller to pay these fees, despite the widespread custom. Depending on the location, HOA, and cost of the home, these costs may total $1,000 to $5,000.
One advantage of this is that, in most situations, the buyer has the option to choose the title company from which they want to acquire the title insurance coverage when they pay for the title policy. Make sure to specify in your offer that this is the choice your customer wants. Additionally, make sure to obtain charge estimates before having your offer approved, or set a cap on the prices your buyer is prepared to spend.
Even while saving the seller a few thousand dollars may seem insignificant in comparison to the hundreds of thousands of dollars that purchasers are paying for the home, some financially conscientious sellers will appreciate the small effort.
9. Provide A Flexible Possession Date To The Seller
Many sellers worry about finding a home they can afford and truly want to buy since they also need to buy a house. Your buyer can be accommodating with the seller when it comes to them needing to move after they sell the home, allaying the seller's concerns.
Of course, variable possession dates are a benefit of cash offers. To give the seller additional time to move, there are two basic tactics that financing buyers can employ. Both the buyer and the seller can benefit from each, but there are also negatives. Finding a solution that works for all parties is crucial.
If the seller needs additional time to stay after the house is sold, a rent-back arrangement that is free of charge can allow them to do so.
This approach presents a problem if your buyer requires mortgage financing. It is a condition of both FHA loans and conventional loans that the new owner moves into the home within 60 days of taking ownership. Your buyer could need to meet investment loan requirements if the seller wants more time than that.
Our team recently dealt with a seller who was waiting for the construction of their new house. The successful bidder consented to obtain an investment loan in order to permit the seller to rent the property back for a maximum of six months following closing. The vendor was spared the expense and hassle of having to relocate twice as a result. After settling in, the buyer intends to refinance the house using an owner-occupant loan with a lower interest rate.
The majority of states offer a pre-approved post-occupancy form. If your state doesn't offer these papers, suggest your client to get a lease prepared by a local real estate lawyer to protect both your client and yourself.
If a free rent-back is unsuccessful for your buyer, consider employing a contingency for a new home. A two- to the four-week window during which the seller must locate, secure, and examine a replacement home is known as a replacement home contingency. If the seller is unable to finish this by the deadline, they may do so by extending it, or the buyer or the seller may end the agreement.
The advantage of this method is that, because the closing and possession will be coordinated with the seller's replacement house purchase, you won't encounter the 60-day occupancy restriction as you would with other strategies.
The drawback is that the seller can cancel the agreement and continue living in their current home if they are unable to find a replacement property. Any money the buyer spent on inspections and assessments in this situation could be lost.
Making deals like this work requires solid communication with the listing agent and a grasp of the needs of the seller.
10. Share Ideas!
When agents send me offers via email without first giving me a call or text, I find it abhorrent. What sort of agency carries out this? That is that? A sluggish agent who doesn't really want to do their job!
In this competitive market, I want to make it as simple as possible for the selling agent to accept an offer I write for my buyers. To do this, I always give the listing agent a call (yes, on the phone!... and no, not in a text message!) to gain a clear knowledge of the seller's circumstance and to determine how we might create an offer that is tailored to their particular requirements.
Call me traditional, but when I'm making bids to my sellers, the specifics are important to me. I know a lot of other listing agents that also do this. Write a thorough cover letter that lists the offer's important characteristics in bullet points and explains how the buyer's offer takes the seller's needs into account. Describe the buyer's circumstance and finance if necessary.
Lastly, I communicate with the listing agent through phone calls or texts to inform them of my offer and request confirmation that they received it. This demonstrates to them my initiative and communication skills.
To Sum Up
The best method to outbid cash offers on a house is to make the seller feel as relaxed and secure as possible. You can achieve this by crafting your offers in a way that minimizes the difficulties associated with financing and takes into account some of the additional worries a seller could have. We wish you luck as you put my team's 10 tips for creating winning offers to use!