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How To Compete Against All Cash Offers

Cash for HomesAll cash offers are no longer rare or special.

My last five Glendale Ca homes, in all price ranges,  had at least one all cash offer.  My Realtor friends on the Westside of Los Angeles tell me this is true even in their nosebleed price points.

It is enough to make a buyer want to scream.

“Where are people getting all this dough?!”

For most, the cash was accumulated over time and as a result of smart investments that paid off as our economy began to improve.

In past markets this money would have been invested in financial vehicles or other business opportunities.  Today, however, Real Estate seems like a much safer investment.  it is a tangible asset, not a complicated investment that the average Joe has no hope of understanding and  it seems that house prices can only go up from here.

Some are using family assets, typically a parent’s investment portfolio.  The family liquidates and gifts the money so that the buyer can make an all cash offer.  After the close of escrow, the buyer gets a normal mortgage and pays back the family.

“How can I ever compete?”

That’s the $640,000 question, now isn’t it?

The first thing you need to do is understand why an all cash offer is attractive to a seller.  Afterall, they get the same dollar in their pocket whether it is financed or all cash.

It boils down to risk.  An all cash offer is not subject to the rules of a bank.  There is no third party that can deny the transaction or delay the close.  Therefore, an all cash deal is more likely to close intact and on time.

Compete by removing risk.

By removing some, or all, of the contingencies standard in the California purchase contract here, you can greatly increase your chances of winning.  Let me start by telling you that I DO NOT RECOMMEND these techniques.  However, if you want to buy the home of your dreams you might NEED to do some, or all, of these things.

No appraisal contingency

This is the most common contingency that is removed upfront.  If you have a large down payment there is no real downside.  Your bank will lend up to 80% of the appraised value, so a buyer with 25% or more is unlikely to suffer any consequences of a lower appraisal.  Remember, an appraisal is only one person’s opinion of a homes value.  As long as you feel confident of the home’s value a lower appraisal should not matter.

No loan contingency

The risk of removing this contingency will vary, widely, with the individual.  Remove this contingency ONLY if you’ve had a qualified loan professional examine your entire loan package and credit history.  The person who is best suited for taking this risk has a regular paycheck (not commissioned or self employed), has a very high FICO score and is buying below his means.

No inspection contingency

This is, in my opinion, the riskiest contingency to remove- but it also means the most to the seller.  A buyer’s opinion of condition is a complete wild card- it is so individual there is no way for a seller to anticipate what a buyer might do after completing inspections.  Every seller is afraid the buyer is going to “nickel and dime” them to death or, worse, demand a complete remodel of something major.

If you remove the inspection contingency the seller breathes a huge sigh of relief because they will feel confident they have a solid deal and they are safe to move on with their plans.

The risk for you, the buyer, is that we can’t know what is under the floors or in the attic, and there is no expectation the homeowner knows, either!

The best circumstance is to do a general home inspection before placing an offer.  This is unusual, and many homeowners will not allow it, but it is the safest way to remove the contingency and deliver a winning offer.

The bottom line

If you remove, any or all, of these contingencies upfront, you risk losing your earnest money deposit- typically 3% of the sales price. This is not chump change, and it is why I strongly encourage a complete exploration of possible risk before submitting your offer.

However, this might be a risk worth taking for the home of your dreams.

About Kendyl Young

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