Market Trends: 4 Things to Consider When Clients Make or Compete with Cash Offers

Although the majority of homes today are still purchased using traditional financing, getting a mortgage isn’t the only way to buy a home. In several markets around the country, cash is still king. In a low-inventory real estate market, where homes can sometimes generate multiple offers and bidding wars, you might find yourself working with more cash buyers than ever before.

Here are 4 things to keep in mind when facing cash offer scenarios.

1. Know what happens when you “assume”

There are many benefits to a seller accepting a cash offer: Eliminating the mortgage approval process — and all the paperwork that goes along with it — results in a more streamlined, faster purchase. Sellers can also feel reassured knowing that the sale probably won’t be quashed for financial reasons — often the biggest contributor to a failed home purchase.

Your buyers might think that price is the only thing on a seller’s mind, but sellers also want a speedy, easy and convenient transaction. That’s why buyers can’t assume a seller will choose their cash offer over one that’s being financed. You can save your clients time and money later on by advising them to take in the entire picture before deciding to make a cash offer. For example, does your client’s requested closing date fit the seller’s schedule? Is your buyer able to get a mortgage if needed? Can they prove they’ve actually got the funds within, say, five days of the seller accepting the offer? Are there any contingencies — for example, does your buyer need to sell their own home before purchasing a new one?

If your buyers offer cash but otherwise complicate the process, the seller might decide that a financed buyer who has all their ducks in a row is the better deal. Arm your client with information to help them make an informed decision before presenting a cash offer.

2. Suggest clients rethink a mortgage when rates are low

If mortgage rates are particularly low, you might advise your buyer clients to reconsider a mortgage and put their cash into an investment that offers a better return. For example, if they can borrow money at 5 percent and get an investment rate on their cash that returns 8 percent, not only would your clients make more than their borrowed interest rate, but they would enjoy tax advantages on their mortgage interest as well. Encourage your clients to speak with their financial advisor; they might change their minds about where to invest their cash, which can affect how you proceed with helping them purchase a home.

3. Help non-cash buyers compete with cash offers

If you find out that a buyer with cash is competing against your client for the same home, don’t despair. There are a few things you can suggest your non-cash buyer do to best position themselves and their offer for the seller. For example:

• Sell their current home before buying their next one. They’ll know how much they have to spend and they won’t have to include that contingency when they make an offer.
• See if they can qualify for a conventional loan instead of an FHA loan; some sellers might consider FHA buyers to have lower credit scores, which could threaten the sale.
• Don’t ask the seller to pay any closing costs.
• Ask the seller to fix only structural or safety issues — not minor or aesthetic ones.
• Make a bigger down payment than the minimum so they reduce the amount of their mortgage and increase their chance of getting approved.
• Concede as many choices as possible to the seller, including the amount of the earnest money, preferred escrow company or attorney, closing and possession dates, length of the inspection period — basically, any of the “stuff” that goes into completing an offer.
• Don’t write in any additional terms or conditions on the contract that could weaken the offer.
• Write a personal note to the seller, letting them know exactly why they desire the home so much.

4. Advise foreign buyers who make cash offers

Most buyers just need your general guidance when considering making a cash offer, but if one happens to be a foreign buyer or investor, remember that they might need more time to transfer funds from another country.

Also, foreign investors are familiar with the process of buying homes with cash and, like any businessperson, might open with a low-ball offer or have different expectations when it comes to negotiation. Know that going in and be prepared for what the seller’s reaction could be because at the same time, investors also understand it’s a business transaction and want to complete it as quickly and easily as possible.

Both buyers and sellers can benefit from cash offers: Sellers have peace of mind knowing that the sale will go through faster and smoother and buyers know their investment has excellent equity from the get-go. Financing can be one of the biggest headaches in buying a home; when you advise clients who are considering a cash deal to eliminate that aspect of the process, you can provide great customer service and close more sales, more quickly.