How to compete with cash buyers?

Question

Hi BP,

Man, I have a competative market! A property in my area was listed last night at 6:00PM. I first saw the listing at 8:00 and email the listing agent because I figured it was too late to call. In the email I said I want to make an offer and would call in the morning. I called this morning at 7:20 not expecting to reach him (his office doesn't open until 8) but he answered. He said he had 14 showings set up today and 4 offers (pending showing) and that the offers were most likely going to be cash offers.

This is insane! First, how do you set up 14 showings and get 4 offers within a matter of a couple hours of it being listed and second how do I compete with cash buyers?

The property is listed for $139k. I was planning on financing this amount and would have no problem getting that financing but it sounds like that won't compete with the cash buyers. Why is the cash so much more appealing? The selling is going to get a check for the full amount either way (This is a clean sale not a REO or foreclosure). Is a cash offer for less more appealing? Ex. What is a better offer: 1) all cash (show proven available amount at offer) for $140k or 2) a $145k financed offer with me waiving my finance contingency.

I think I can come up with cash but it would tap me out plus it would come from a few other private money sources. In that case do I just staple a dozen bank statements from all my family, friends and neighboors to the offer showing I can get the money in cash?

Is there anything else I can do to make this offer more appealing? I'm just trying to buy an investment property. I lost count of what attempt this is.

George Hermann · Answer

So, here's your answer. A sellers agent always looks for two things in an offer. Amount of offer and ease of sale. If a buyer has all cash, the ease of sale factor is very high. If you can't equal the ease of sale you must offer more money than the cash buyer.

Don't even think about how many showings or offers the agent claims to have. You only need to determine what is a good deal for you and then make that offer. If the market is that hot you will probably have to offer over the ask to get noticed.

Upen Patel · Answer

You said it correctly. Any issues that are gong to happen in a regular loan can and will happen. The main advantage of a Fully Approved Loan is that your ability to get the loan has been addressed (which is usually the big thing). No running around at the last min trying find some document that underwriting needs. So you can focus on resolving the other items.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

Upen Patel · Answer

For a financed property, the closest a buyer can come to a cash offer is with a Fully Approved Loan. This is not your run of the mill pre-approval. In a Fully Approved Loan, the loan goes through full underwriting with the address as TBD and is approved up to the loan amount and interest rate. The contingency is the appraisal and title. You can confidently bid on any property knowing and your loan is approved, and the seller knows that there will be no loan delays.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

Neal Collins · Answer

That's tough. I can empathize. Time to work off market and not have to go through agents so that you have a better shot at competing.

Upen Patel · Answer

Moderator: This is not self promotion. Just providing general insight into a loan option that is not available from all banks.

Russell Brazil · Answer

@Upen Patel is right that an offer underwritten by a lender who does fully approved loans carries a lot of weight. When I as a listing agent get offers from certain lenders that do this, it carries more weight when I am presenting the offer to my sellers. When I am working as a buyers agent, I know that using lenders that do this type of underwriting will make my offer more competitive.  Now it is not as good as a cash offer, but it is leaps and bounds better than than your standard preapproval. Also of note, in my experience a fully approved loan will typically carry a slightly higher interest rate, but that is simply the cost of doing business in a highly competitive market.

Daria B. · Answer

....how many of these have you yourself done or been part of? Are there specific guidelines that allow certain financial entities (ie banks, mortgage brokers/bankers, smaller credit unions) to do this. I think in this context HML/PML is omitted since they are a slightly different structure.

Daria B. · Answer

@Upen Patel

...and the appraisal, survey, home inspection...all come after with a "fully approved loan" in play...

If any of those items come back with an issue, how does underwriting adjust for the many things that can happen. Seems like too much fluid in motion to keep control of. ie home inspection comes back with something or there is an issue with the survey. I suppose any of these things that can happen with a "full approval loan" could in fact happen in the normal setting.

Nnabuenyi Anigbogu · Answer

@Upen Patel  I would like to also know if this is something all banks do. I will be in the market for a 2-4 unit in 2-3 months and would love to go the route of getting fully approved prior to placing a property under contract.

Upen Patel · Answer

No not all lenders do this. It take a little more work/coordination and an underwriting staff that is good. So most lender shy away. We don't shy away.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

How to compete with cash buyers?

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