5 Ways to Beat an All Cash Offer

The current housing market is extremely competitive with fewer homes available to meet the buyer demand. There are a few home buyers that have the full amount of cash in hand to offer an all-cash offer on their desired home, this only makes things more difficult for the majority of homebuyers that require some sort of financing. You would think that most sellers would jump on the opportunity to sell their homes quickly without the headache of dealing with the requirements and timeline of a bank.

If you aren't in the position to make an all-cash offer on the home of your dreams, don't panic, there are ways to set yourself up to compete with all-cash offers and even come out on top. Purchasing a home takes prep work regardless of the market, taking these additional steps can help you beat the competition.

1. Mortgage Pre-Approval

One of the perks for sellers accepting an all-cash offer is the time it takes to close on their home can be significantly quicker. If you're in the market to purchase a home and don't have the full amount available in the bank, mortgage pre-approval could be detrimental to your purchase.

Sellers don't want to have to wait for you to determine if your mortgage is going to be approved or not, so having the pre-approval reassures the seller that your financing is available.

Lenders will require a credit check and your complete financial information to determine your creditworthiness before giving their approval. If you've never purchased a home before, you may be shocked at how deep lenders will dig into your personal, financial life. Don't be surprised by some of their requests. They may require a written explanation if there are questionable items or late payments. Accumulating all of this information can be time-consuming, getting pre-approval will only motivate a seller to keep you in the running.

2. Waiving Contingencies

Contingencies are requested to protect the buyer from having to follow through with the contract should issues arise. When competing with multiple offers, waiving contingencies becomes much more attractive to a seller as it makes the entire process easier for the seller.

Contingencies that you'd be waiving are financing, inspection, sale, and appraisal.

Financing contingencies mean that you are not able to back out of the deal if your financing falls through. Getting pre-approved for your mortgage is an easy way to avoid this contingency.

An inspection contingency allows the home buyer to have the home inspected before the purchase is finalized. If there are major issues, the buyer can back out of the deal without penalty. Waiving the inspection contingencies is more often the riskiest due to the costly, hidden repairs that you could discover after the purchase is finalized.

Sale contingency is the most undesirable contingency for sellers. This contingency is designed for existing homeowners and stipulates that the purchase of the home will be determined based on the sale of the buyer's current home. Sellers are currently at an advantage, so eliminating offers with a sale contingency are likely the first to go.

Appraisal contingency allows the buyer the opportunity to renegotiate or back out of the sale if the appraisal is low. Homes are currently selling for well over the asking price, this contingency is likely mute unless the purchase is completely reliant on your bank financing. If you have money set aside to pay over the appraisal, you are in a good position to waive this contingency.

Unfortunately, waiving contingencies are risky for the buyer, so make sure you fully understand the contingencies you are waiving and consult with your agent to determine if this is the right step for you.

3. Earnest Money Deposit

The earnest money deposit is an excellent way to show the seller you are serious about your offer and gives them confidence that the sale will go through. The earnest money deposit reserves your right to purchase the home, if you back out without reason, the seller gets to keep your deposit.

To make your offer stand out, increase the amount of your earnest money deposit. By increasing the amount of your deposit, it shows the seller you are willing to stake your money on it.

4. Offer Above Asking Price

When a seller receives an all-cash offer, the offer is usually lowballing the asking price. The buyer figures that the seller will jump on the offer for a quick, easy transaction in exchange for the asking price. When you are up against a cash offer, showing the seller you are seriously interested in their home, offering more than they are asking is a great way to stand out against other offers.

You might also consider an escalation clause. This clause is designed to increase your offer automatically, to a certain threshold, if you are outbid.

5. Appraisal Gap Guarantee

An appraisal gap guarantee is designed to let the seller know that if the appraisal comes back low, you are willing to cover the gap. You don't want to include this guarantee if you don't have the extra money set aside to cover the gap outside of your down payment.

In the current hot market, it is not uncommon for appraisals to come in low. By including an appraisal gap guarantee, puts the seller's mind at ease.