6 strategies to beat an all cash offer on a house

6 Strategies to Beat an All-Cash Offer on a House

It’s no secret that the housing market is on fire. In fact, three-quarters of buyers face a bidding war these days. To stand out from the pack, 25% or one in four buyers are making cash offers. These cash bids offer definite money and fast closing — both of which can be tempting for eager sellers. However, not everyone can afford to cough up hundreds of thousands in cash upfront. In reality, the majority of buyers (especially first-time home buyers) rely on mortgages to finance their home purchase.

If you’re in competition with a cash buyer, there are still ways you can compete. Here’s how.

1. Get approved for your mortgage

Getting pre-approved before you try to make an offer on a house is a must. It’s basically an “all-clear” for your mortgage loan, except you haven’t found a house just yet. With these types of pre-approvals, you can give sellers confidence. Even with a financing contingency in your contract, they know you’re a safe bet to buy their house and follow through.

2. Waive contingencies

The easier you can make things for the seller, the better. Waiving contingencies is one of the best ways to do that.

This might mean waiving your:

  • Financing contingency: Waiving this contingency means you wouldn’t be able to back out of the deal if your mortgage loan falls through.
  • Sale contingency: This one is reserved for existing homeowners and stipulates that you must sell your existing home before following through with the purchase. (It’s also one of the least attractive contingencies for sellers).
  • Appraisal contingency: This allows you to back out or renegotiate if your appraisal comes in low.

Keep in mind that waiving contingencies is risky. Make sure you talk to your agent about the risks and rewards of waiving contingencies if you’re considering this.

3. Increase your earnest money deposit

Earnest money is essentially a good faith deposit. It reserves your right to buy the home, and if you back out of your contract without reason, the seller gets to keep the money. If you really want to stand out, increasing your earnest money deposit is a great way to do it. It shows the seller that you’re serious about buying their house and that you’re willing to stake your hard-earned dollars on it.

4. Offer above asking price

Many times, cash buyers come in with lower-than-asking-price offers, largely because of the ease their transactions come with. If you’re up against a cash buyer that’s low-balling the seller, going above and beyond the listing price may be a way to stand out. You can also think about including an escalation clause, which increases your offer automatically if someone outbids you (up to a certain threshold, of course).

5. Include an appraisal gap guarantee 

In today’s hot seller’s market, it’s common for appraisals to come in low. Naturally, this worries sellers (they don’t want you pulling out of the deal if the home appraises low). To relieve these fears, you might consider adding an appraisal gap guarantee to your offer. This tells the seller you’ll cover any discrepancy between the bid and the appraised value.

This is typically only an option if you have some extra cash saved up outside of your down payment. Covering an appraisal gap would mean paying extra above and beyond the money you’re putting down with your lender.

6. Get personal

You can also write a personalized offer letter to the sellers detailing what you love about the home and why it’s the perfect fit for you and your family. Some buyers even include photos of their kids or pets. It’s a nice way to differentiate yourself from other buyers and really pull at sellers’ heartstrings.

The bottom line: talk with your agent, get a pre-approval from First Centennial Mortgage, and go into your home search ready to compete. 

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