What is an All Cash Offer: Unravelling the Cash Offer & How To Compete With It
In the day and age of multiple offers, it has become even more difficult for buyers in need of financing to compete with all-cash buyers. In turn, they’ve had to adapt, strategize, and take active steps towards making their offer more attractive. Before we get in to the tactics to compete, let’s start off with analyzing the competition – the cash offer – and understanding why it is attractive to the seller.
What is a an all cash offer?
A cash offer is when the buyer has the cash funds available to purchase the home without the support of a mortgage from a lender or bank.
Why is an all cash offer attractive?
When you’re paying all cash, you don’t need to have a lender approve a mortgage or appraise the home. Thus, as a listing agent, if you have a cash buyer, you know that the deal is going to close with the least amount of risk to the seller in terms of money and probably in a shorter amount of time as there is no third party involved. An example of risk with a mortgage backed buyer is that should the property not appraise at the purchase price, the buyers may be forced to provide the cash difference. If they don’t have the funds, the buyers may demand to pay the appraised value only, or walk away from the deal altogether. With cash, you can be 100% certain that the buyer has the funds in hand, and that they will not be backing out due to lender factors such as an under-evaluation of the home based on the purchase price. Again, it comes back to the likelihood of closing, with all cash buyers having a better closing rate.
You can be 100% certain that the buyer has the funds in hand, and that they will not be backing out due to lender factors such as an under-evaluation of the home based on the purchase price or a building defect.
With that being said, the phrase “cash is king” is often used in real estate. So how exactly can you as a buyer with the need for financing compete with the cash buyer? If you’re dealing with a multiple offer scenario against a cash buyer, begin with the following steps when presenting your offer to make it more attractive.
How to win against an all cash offer: Steps to make your financed offer more attractive
Have a pre-approval letter written by the lender stating that you have full approval
A pre-approval letter will show that you’ve talked to the lender, they’ve received your documents (i.e. income), and that they don’t foresee any issues arising with regards to financing and subject removal. Essentially it shows that you are ready and able to buy the home, and will assure the sellers that you are a reliable buyer that has actively taken the steps before the offer to get qualified.
For the best results, make sure that the pre-approval letter is on a company letterhead (from the broker or bank), specifies the borrower, the lender, and the type of property. It may also include the loan amount/purchase price, interest rate, and term, but at the very least you will want to include contact information for the broker/lender so that the seller can contact them if they please.
The next best thing to cash: Remove the subject prior to the offer to prove that you have the financing in place
This is a “put your money where your mouth is” tactic and in our experience is very aggressive and in turn successful. If you can remove the financing subject it is as good as cash, just don’t do it unless you’re sure that you can qualify for a mortgage. Talk to your mortgage broker or bank, make sure you’re well within your limit, send them the feature sheet for the property, confirm the property is not a grow op, have them review/pre-appraise the property and run the comparables, and then get the approval. Make sure your mortgage broker and your realtor work actively together if this is the route you’re going to go, as the realtor will most likely be the one performing the pre-appraisal.
For more details on subjects and the type of clauses that typically consist in an offer, read this blog here: Real Estate Clauses for Contracts in BC
Shorten your subject removal period from the standard 7 days to 4-5 days.
If you are going to keep the financing clause in for safety reasons (and we get that, you never know what will go wrong), try to shorten your subject removal period. Let them know you’re confident in your financing and you’ve already got the pre-approval, and that the lender just needs to complete the appraisal and complete the final underwriting (can only be done once you have an accepted offer). Depending on how fast your mortgage broker works, your financing should only take a day or two, so try to shorten your subject removal period to 4-5 days away to show your confidence in your ability to obtain a mortgage. This also lets the listing agent and homeowner know that even if the offer does collapse they can quickly let the market know they are welcoming showings and the listing doesn’t look stale.
For more information about what subject removal is, read this blog post: What is Subject Removal and How Does it Work?
Increase your deposit amount
Typically, the deposit on a home in the Greater Vancouver area is 5% of the purchase price. Another strategy to beat out a cash offer is to increase it to show your motivation and that you’re not interested in backing out. Increasing the deposit amount to 10 or 15% will show that you’re confident in your offer.
For more details on how deposits and subject removal work, read this blog: Deposits in Real Estate 101
Bid higher, increase your purchase price
At the end of the day, the majority of sellers are just going to want the highest price. Yes, some sellers are interested in dates, and some sellers would prefer to sell to someone they like vs. someone they don’t; however, the majority’s number one priority is going to be netting the most amount of profit. The other terms will just be icing on the cake. If you’re not able to go all cash or subject free, odds are you’re going to have to get the sellers attention in other ways – like bidding the highest. Price is usually the most important factor when selling a home.
Be flexible with the terms. Leave your dates completely open to their discretion, or at least leave room to negotiate.
As mentioned, the majority of seller’s number one priority will be netting the most amount of profit, thus putting the most money in their pocket at the end of the day. With that being said, many sellers are also buyers, and they’ve bought their new home already and have “perfect dates” in mind to match their purchase. Have your realtor ask the listing agent what the seller’s preferred dates are. If you’re having a tough time pulling it out of the realtor (the sellers may have asked them not to disclose for negotiation reasons), then your best bet will be to leave the dates blank and have the sellers fill them in. The difference between 1st and 2nd place for price may be $5000 or it may be $50, you don’t know. If you’re in second place by a few dollars but your dates are more flexible, the sellers may be willing to pay for the cost of convenience. Are there other terms the seller wants? Leave it to them and try to be as flexible as possible.
Write a love letter
Some sellers are really emotionally attached to their home. Maybe they’re not ready to move, but they’re being re-located for their job, or there’s a family situation, or they need the money for personal or business reasons. You don’t always know the scenario. Another way to have an upper hand is to write the sellers an “I’m so in love with your home letter” highlighting the reasons why you see yourself living in their home and that you can really tell they put a lot of love and care in to it. Real estate is an emotional process and by bringing those emotions out of the seller you may be on your road to winning. Some home sellers want to sell to someone that will take care of the home they lived in for so many years – they sometimes appreciate that their home isn’t just going to be flipped or used as a source of rental income.
Have your realtor present in person
Once you’ve completed all of the previous steps and have a rock-solid offer, ask your realtor to present in person. Although a number of offers are emailed to the listing realtor from the buyer’s realtor, there is most certainly a benefit of presenting in person. Your offer will be communicated more clearly and with more emotion, and all of the benefits can highlighted to ensure that nothing is missed. Furthermore, the majority of communication is done through body language. By presenting in person, your realtor is able to pick up on the body language of the seller’s as they go through your offer point by point, to hopefully bring back intel for negotiation purposes if and when the seller counters your offer.
The more of these methods you utilize, the higher likelihood you’ll be able to win against any offer – cash or financed. The multiple offer scenario is difficult, and you cannot always expect to win right off the bat as every seller has different expectations, preferences, and needs. Through our experience, despite whether you win the offer or not, having used these tactics you can be confident that you did everything in you power to win, and if you keep trying consistently with these methods and the right realtor your time will come.
If you’ve lost a multiple offer scenario a couple of times [or more], or are thinking about getting in to the real estate market and purchasing in the near future, give us a call at 604-765-0376. Prefer text? 604-319-0200. or email firstname.lastname@example.org We can give you a run-down of the offer presentation process and walk you through some of our tried tips and tricks that can result in a win. Start a conversation today.
OTHER POSTS YOU MIGHT BE INTERESTED IN…