How to beat a cash offer market is a topic that has been on a lot of home buyer’s minds. How are first-time homebuyers supposed to compete in an age where the adage is “cash is king”?
Today, I’ve invited the content team at HomeLight to share their insights about how to compete in a cash-market. They’re sharing five tips for how to beat a cash offer market.
The housing market can feel like a chaotic place to be these days, particularly for buyers looking to use a mortgage loan. In a world where many people need a mortgage to realistically afford a home, Homelight’s Insight Reports show that 29% of people who bought their home in 2021 paid cash. This could be due to the ability to sell their prior home first, or simply due to having the kind of savings and assets that make a cash offer possible.
It’s hard to compete with such an offer. Cash offers eliminate some of the uncertainty in the closing process, making them very attractive to sellers, so even families who wouldn’t otherwise have the cash available to make a transaction in all cash consider moving money around or getting a gift from a family member just to make one of their offers stick.
So what can you do to compete in this market and make your house buying process as good as possible, particularly if you’ll need a mortgage loan to make the purchase? Here are some of our top tips for those buying in Michigan.
#1:Get Very Clear on What Fits, And Doesn’t
Unlike in buyer’s markets or a more balanced market, there isn’t a lot of room for dilly-dally in this market – waiting and seeing if a home is still on the market is a great recipe for not getting that home.
Since many homes in demanding markets are going under contract in 1-3 days, you want to have a clear profile in your mind for what you’re looking for, and ideally, you want to be working with your agent to know about homes even before they are listed, such as homes with ‘coming soon’ signs out, or to see what it would be like to build in your target market.
These decisions are made in the abstract, rather than while looking at a home in-the-moment, and when an actual home comes on the market, many agents will encourage you to use a combination of prior planning and gut feelings to make the best but also fastest choice.
It’s valuable to create and stick to your wish list unless something truly unique comes on the market, and even then, you’ll have to do your new evaluation quickly and thoroughly.
If you find yourself feeling quite picky or disheartened with the options available, it may be the time to decide you aren’t ready for this market. There’s no shame in that, even if you do need to go ahead and sell your home and move.
Choosing to rent for a year or more may be a small price to pay to buy time for the market to readjust if you aren’t seeing any inventory that you’re happy with in your price range.
#2: Get Comfortable With Putting In an High-Priced Offers
If you are committed to buying and do know that satisfactory houses exist in your price range, you may still be competing against a lot of house-hungry buyers. One of the best ways to stave off fatigue is to know that many buyers are putting in 3, 5, or more offers before they are getting a home.
The first offer should be serious, of course, in case you get it, but it should be just part of the process if you have an offer rejected in favor of a cash offer or a higher bid.
That being said, having a great real estate agent can help you know if your offers were too low for how the market is behaving, and that agent can let you know their own assessment of whether your current proposed price is likely to win over a seller.
#3: Consider Your Other Assets and How To Leverage Them
If you never before considered a cash offer, now is the time to look at your finances and see whether you can make it work. With homes rapidly appreciating, some families are finding it prudent to take money out of retirement accounts, sell a current home to realize some gains, or otherwise turn assets into greater liquidity so that they can afford to pay a cash offer.
Another appealing option for many sellers to see is an offer with a strong down payment and the willingness to pay an appraisal gap, meaning that if the house doesn’t appraise, the buyer is still committed to paying the difference and proceeding with their loan.
You’ll need to talk with your agent to make sure that either of these options is even available to you in particular, but making your offers as attractive and rock-solid as possible is your best bet for competing even in a market with more cash offers than usual.
#4: Take Advantage of Great Agent Know-How
Sometimes, the winning offer on a home is the one that happens at the right time, with the right contingencies and factors all in line with what the seller’s agent wants to see. This isn’t the kind of detail that most first or second-time homebuyers really know; a great agent is who you need to help. They know factors in the current market, like how you really need a showing on the first day or two of sale for any house that is getting attention, or it will already be sold.
If you have an agent who is responsive and attentive, they’ll be the ones showing you what the typical terms of a contract offer include, with everything from how inspections, earnest money, and the offer price itself should look.
While many agents will write up an offer even if you, for instance, want to put in a lower-than-asking-price offer, they’ll also give you their honest appraisal of what the sweet spot is for pricing. They want you to go high enough to be competitive with the kinds of above-asking offers they’ve been seeing, but not so high that you risk the home not fully appraising.
This delicate balance has everything to do with being in the market day-in, day-out, so an agent who has sold homes recently and is really digging into the comparable homes for you can really give you an edge in terms of intelligent choices in the moment of writing the offer.
#5: Monitor the Market For Signs of a Cooling-Off Period
While cash offers will be of interest to sellers always, the balance of power does shift when there are more sellers and fewer buyers, and sellers may not receive those sought-after cash offers if more buyers leave the market.
The rapidly rising interest rates in the mortgage loan market are impacting the leverage that sellers have over buyers, and will continue to do so over time.
Realistically, there will come a time when there are enough houses that some sellers will get only one or two offers because even the cash-offer folks have options, and that is when your mortgage-loan-based offer will have a chance to shine.
While the past two years have been an anomaly for many reasons, higher interest rates cut down on the buyer competition. Those who were only looking for a home because of great interest rates decide to take a backseat, staying in their current home or continuing to rent for a while, opening up space in the market for you and your offer.
Final Words To Beat Cash Offers
Thanks, HomeLight for sharing those insights. I want to conclude this article to talk about a company I recently ran across in the news: Homeward. Now, full disclosure, I’ve never worked with this company and my experience is limited with them. I am bring it up to present as an option that may be worth the research.
Homeward is a company that markets their services as allowing buyers to make cash offers. From what I can tell, it works like a bridge loan. I’m going to assume the cost of this service is going to be higher than if you get a traditional mortgage, but it may provide a way for home buyers to compete with cash offers by making a cash offer themselves.
Again, the Dolinski Group has no experience with Homeward so please, please do your research to see if this is the right solution for you. Otherwise, stick to one of the five tips shared by HomeLight.
