1 in 3 U.S. homebuyers pays all cash for their home.Here are the dos and don’ts for competing with cash offers

Trying to compete with an all-cash offer is difficult, but these tips can help.

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key point

• Many buyers pay cash for their homes.
• Sellers sometimes prefer a cash offer because it makes the process easier.
• Those who don’t have a lot of cash to put down can still make a competitive offer by getting pre-approved and including an assessment gap guarantee.

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Buying a home with cash has become increasingly common. In fact, according to Redfin, nearly a third of U.S. homebuyers who purchased a property in July 2022 paid cash for the deal. This is close to the all-time high set in February of this year.

This statistic can be frustrating if you don’t have hundreds of thousands of dollars available to buy a property. It’s hard to compete with cash buyers. Sellers often prefer to work with people who don’t need financing. Cash buyers often have more flexibility in closing deals because they don’t have to wait for mortgage approvals. Deals are less likely to fail due to home loan eligibility issues.

But just because so many people pay in cash doesn’t mean you’ll automatically lose the property if you can’t. You can still make a competitive offer – you have to be smart about that.

These are the ‘do’s’ to compete with cash offers

These are the best ways to successfully compete with an all-cash property purchase:

• Get pre-approved for a home loan: Getting pre-approved gives sellers more confidence that you can actually close the transaction. It also enables you to get your mortgage faster, which can be a big plus for sellers. It involves submitting financial details to the mortgage lender and getting preliminary loan approval. You’ll receive a letter from your bank that you can submit with your offer so the seller knows you’ve taken this critical step.
• Make a bigger deposit: If you can put more money in as a deposit, this can convince sellers to work with you even if you don’t offer an all-cash offer. It shows that you are serious about closing the deal and can assure the seller of your financial health.
• Includes Assessment Gap Assurance: When you get a mortgage, the lender usually requires a home appraisal. If the appraisal shows that the home is worth less than what you paid, this can cause problems because you may not be able to get a mortgage large enough to buy it. Sellers are often nervous about the situation. If the valuation is lower than the offer you provided, you can include a clause that promises to cover the shortfall up to a certain amount (for example, $10,000).

Each of these steps is designed to reassure sellers that you’ll close the deal, so they’ll have less fear of a failed deal.

These are “don’t”

there are some things you should not This is done to compete with the all-cash offer. They are like this:

• Let go of too many contingencies. You may want your offer to be contingent on (or conditional on) a satisfactory home inspection and your ability to obtain financing. Otherwise, if you can’t close the house because you can’t get a loan, you could end up buying a money pit or losing your security deposit.
• Pay more than the house. If you make a higher offer than required and promise to pay more than the home is worth, you may end up with a property that won’t sell for what you paid for. You’ll also have to put more money on the table because lenders won’t lend you more than a certain percentage of the home’s value.

While you want to compete with cash offers, you want to do it smartly so you don’t end up losing money. Hopefully these tips will help you make a competitive offer without putting your finances at risk.