How to Beat a Cash Offer on a House?

Even in a cooling market, cash offers are more common than you think. Almost one-third of US homes sold in July 2022 were all-cash transactions.

This influx of cash will make the market difficult for financed home purchasers. However, this shouldn’t disappoint you from competing against all-cash offers.

What is an All Cash Offer on a House in Real Estate?

A cash offer in real estate means the buyer purchases a house without any financing or mortgage loan. The buyer purchases the property either with a check or via a wire transfer. This means the buyer has the entire sale amount in their bank account.

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What do Home Sellers Like About Cash Offers?

To beat a cash offer on a house, understand what makes cash offers appealing to home sellers in the first place. Following are the reasons why home sellers prefer cash offers:

• Sellers Skip Financing Contingency: Cash buyers have all the needed funds in their bank accounts. They directly give sellers a check or make a wire transfer. Thus, there is no finance contingency clause in the transaction.
• The Closing is Simpler and Quick: With no mortgage financing, the paperwork and the closing process become simpler and quicker. The seller only has to sign the deed, transfer the title, receive the check, and hand over the keys to the new owner.
• Home Sellers Most Likely Skip Appraisal and Inspection: Mortgage lenders require buyers to appraise the property. With no lender involved in an all-cash sale, the buyer may skip appraisal. The seller is also very likely to bypass home inspection. However, an investor looking for a good ROI might go for a home appraisal and inspection.
• Lower Risks of a Deal Falling Through: 16% of purchase agreements fell through in July 2022. A cash-backed offer assures sellers that the buyer won’t back out if they fail to secure a mortgage.

What do Home Sellers Dislike About Cash Offers?

Most home sellers find cash offers more appealing than financed bids. However, cash-backed offers have their set of disadvantages. To compete against cash offers know the following disadvantages of a cash offer beforehand:

• Home Sellers have to Settle for Less: As per a study conducted by researchers in the Rady School of Management at the University of California, home sellers accept cash offers 12% lower than financed offers.
• Home Sellers are Likely to Pay High Hidden Costs: Cash home-buying companies lump in several hidden costs which they generally term as “service fees”. This may be as high as 13% of the home sale price.

» Pros and Cons of a Cash Offer on a House: Read before you compete against cash offers

How to Beat a Cash Offer on a House?

Even if cash offers give home sellers an added layer of security and quick liquid funds, you can still beat them. Here are some of the tactics to beat an all cash offer on a house:

1. Make an Offer at the Listing Price

Most home buyers make cash offers 20%-30% below the listing price. For instance, a home worth $800,000 might attract cash offers as low as $400,000. That’s a lot of money for a home seller to leave on the table!

Making a cash offer at the listing price will give you an edge. Say, a home seller has listed a property at $800,000. We suggest you make an offer around the same price. To compensate for your higher offer price you can:

• Negotiate the final purchase price after the home inspection
• Ask the home seller to bear a major chunk of the closing costs

We suggest you amount for the repairing costs before making your offer. You do not want to bear a huge repair budget.

2. Offer to Pay the Buyer Agent Commission

Traditionally, a home seller pays real estate commission for both – the listing agent and the buyer agent. This amounts to 5.5%-6% of the sale price, usually split 50-50 between both agents.

This means a home seller selling a property worth $800,000 would spend $48,000 in commissions – $24,000 to each agent. If you offer to pay the buyer agent’s commissions, the seller will save $24,000. A deal home seller may not want to say no to!

3. Opt for a Cash Lender

If the unavailability of cash is the problem, opt for a cash lender. Cash financing companies will purchase the property for you for all cash. You can later buy back the property by refinancing or purchasing after closing.

Faster closing and lesser contingencies offered by cash lending companies will help you beat a cash offer on a house.

Here are the top cash lending companies:

1. Ribbon Home

The company has two cash offering packages – Ribbon Boost and Ribbon Reserve.

• Ribbon Boost: The company purchases a house on your behalf by backing your offer with cash and appraisal protection. After securing a mortgage, you can repurchase your home from Ribbon at the same price.
• Ribbon Reserve: It is similar to Ribbon Boost, except you can move into your new house while shopping for a mortgage. This Ribbon loan package is ideal if you want to close quickly.

» Ribbon Home Reviews: Read to know which Ribbon loan suits you the best

2. Homeward

Homeward helps you make a cash offer in three ways:

• Buy Before You Sell: Homeward purchases new property in full cash before you sell the existing one. You move into the newly purchased home, list and sell the old one, and use the proceeds to repurchase your new home from Homeward.
• Buy With Cash: To make your offer more competitive Homeward backs your offer with cash. Unlike buy-before-sell, you need not sell your existing house. Homeward Buy Before Sell empowers first-time home buyers to make cash offers.
• Cash-Backed Offers: If your mortgage financing falls through, the Homeward backs your offer with cash. A cash-backed offer from Homeward will strengthen your offer but will leave you on the hook to pay a 1% fee, even if you do not use the entire cash.

» Homeward Reviews: Discover how Homeward differs from other cash-offering companies

3. Homie Cash

Homie Loans announced Homie Cash™, a program that allows buyers to make all-cash offers to increase their chances of winning the perfect home drastically.

The company levels the field by allowing buyers that don’t have hundreds of thousands of dollars in their bank accounts to become cash buyers and compete against investors and iBuyers like Opendoor, Offerpad, etc.

As a buyer, you need to understand that you still need to get a traditional mortgage to pay back Homie Loans. This means you have two closing costs and end up spending more than necessary on one transaction!

» Homie Reviews: How Homie Cash Offers work?

4. Opendoor Cash Offers

To secure a cash offer through Opendoor you need a mortgage pre-approval first. Opendoor pairs you with one of their agents to help you figure out your cash offer budget. The Opendoor agents also help you negotiate various contingencies involved.

Once the seller accepts the offer, Opendoor will purchase the house in full cash and hold it for you. In the meantime, you can shop for the mortgage and buy back your house from Opendoor.

» Opendoor Reviews: Everything you need to know

5. HomeLight Cash Offer

Homelight is a cash offer company that deals in both buying and selling houses. The company is willing to make cash offers on your behalf and resell it to you if you meet their cash offer criteria.

The company offers guaranteed closing. This makes Homelight stand apart from other cash financing companies.

» Homelight Cash Offer Reviews: Read what cash home buyers have to say about Homelight

4. Offer to Pay the Appraisal Gap

The home appraisal gap is the difference between the home sale price and the lower appraised value. As per the NAR 2022 Apprisal Survey, 35% of home buyers are unable to cover the appraisal gap.

As a financed buyer, offer to cover the appraisal gap to make your bid more appealing. We recommend restructuring your loan or borrowing from a family member or friend to cover the gap amount. You may even consider borrowing the appraisal gap amount from your 401(k).

5. Waive Some Contingencies

Lesser contingencies will make the home seller’s life easier and your offer more appealing. Waive the following contingencies to beat a cash offer on a house:

• Financing Contingency: You are 31% more likely to win the bid by waiving the financing contingency. Get your mortgage pre-approved to be in a position to waive this contingency.
• Home Appraisal Contingency: Giving up on home appraisal contingency will guarantee home sellers that you won’t negotiate the sale value post-appraisal.
• Sale Contingency: This contingency entails that the buyer sells their existing property before purchasing the new one. At times, home sale contingency delays the sale process, leaving sellers on the hook. Only 8% of buyers let go of home sale contingency. Waiving it can be a good strategy to beat a cash offer on a house.

Bottom Line

Cash offers are appealing to most home sellers as they are less risky, give home sellers access to liquid funds, and offer quick closing. But this shouldn’t discourage financed home buyers from making a bid.

Talk to your agent, and get your mortgage pre-approved, before you set out for your home search.

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