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How to Compete with Cash Buyers (Part 2)

We discussed last time that many homes in Santa Clara County are bought by cash buyers. If you are in a multiple offer situation and are facing cash buyers, does that mean you just throw your hands up in the air and concede defeat? Don’t be discouraged yet. Let’s take a look from the sellers’ standpoint. Cash offers and financed offers make no difference at the end of escrow. The sellers net the purchase price minus the closing cost and any outlying mortgages and liens. The key differentiator is the probability to close. Usually, cash offers have higher chance to close than financed offers, manifested in two factors. If you can close the gaps on these two factors, then you have a chance to win against cash offers.

First, cash offers are not gated by appraisals and appraised values. Even if you have really good credit score and are pre-approved by one of the reputed direct lenders, the approval of the loan still replies on the appraisal value equal to or higher than the offered price. This is especially uncertain in the up mar

ket when intense competition drives up the purchase prices of the winning bid while the appraisal is still based on the sold comps of the past few months which are lower in prices. If you can demonstrate to the sellers that you have extra cash reserve beyond the budgeted down payment to help cover the difference just in case, that eliminates the uncertainty of the appraisal and closes the gap between you and the cash offers.

Second, cash buyers are less likely to flake out. Cash buyers are usually seasoned home buyers or investors who have bought and sold homes before. They know what they want and they are not as easily fazed by any defect in pest and home inspections. As a first home buyer, you should spend more time to identify your preference and get yourselves familiar with inspection reports and disclosures. So that when the right house comes along, you are pull the trigger and stick with it.

Your readiness to close will need to be demonstrated on how the loan/appraisal and buyer’s investigation contingencies. While it is important to shorten the contingency period to win the bid, there is risk to it. Discuss it thoroughly with your real estate agent and know what you are getting into. In the end, the closer you can make your offer to be like a cash offer, the less you need to beat them on price. Remember, price alone doesn’t win it all.

Tina Lam