You finally found that amazing condo facing the turquoise waters and white sandy beach. But you’ve heard that investors and foreigners in certain parts of the United States are buying everything with cash. You need a mortgage to pull off this purchase.
How can you possibly compete when someone else has the money in hand and can close as fast as possible?
Cash home buying is down from its peak, but still a huge part of the real estate market.
According to Core Logic cash sales made up 31.3 percent of total home sales in June 2015, down from 33.9 percent a year before. The peak of cash house buying was 46.5 percent in January 2011.
For June 2015, New York had the largest cash transactions with 47 percent, followed by Florida at 46 percent). The Delray Beach-West Palm Beach, Fla., area had the highest cash sales share at over 55 percent.
But if you are not able to pay cash for a home, real estate and mortgage experts say that there are plenty of things you can do to improve your odds when going up against a cash buyer.
“A few years ago when the market crashed, I ended up having more cash buyers in two years than what I have seen my entire real estate career,” said Lisa Treu, owner and team leader at Treu Real Estate Group in the Palm Beach and Martin County, Fla.. “A lot of it came from parents and grandparents giving their kids cash to buy homes because they weren’t getting anything out of their bank accounts. Their money was just sitting there not making any interest.”
Her agency had buyers in all price ranges, and about 60 percent of all the transactions were cash in the past few years. That was almost unheard of any other time in their history. Now, it’s down to about 30-40 percent cash transactions, depending on the month, for her agency. Much of that comes from second-home buyers from the Northeast, Canada and internationally.
“We have become really good at winning against cash buyers and creating a strategy on how to do that. Not all first-time homebuyers or others who are trying to move up or downsize has a grandparent or parent with all that cash. There are people that need to get a mortgage,” she says.
Here are some of her tactics to use to try and compete with cash buyers:
1. Connect with the seller
“It starts at the time of the showing of the property. If the seller is there, find a way to be friendly and connect. Don’t show all your cards and get so excited about the place,” she says. “But find something about the home that you love and be complimentary.”
If they aren’t there during the tour, attach a personal letter to your offer talking about yourself and how this home is perfect for you and your family. Talk about the family, the kids, the grandkids and how you can see yourselves enjoying certain aspects of this home.
“Homeowners who love their home want someone that’s going to love their home, too. They want to know who you are and what you love about the home,” Treu says.
She once had clients who loved their neighbors so much that they only wanted someone buying their home who would continue being good neighbors.
“Sellers care about price, but they certainly care about who is buying the house, too, especially if there are multiple offers,” she said.
2. Give the Seller Extra Time to Move
“Besides offering a great price for someone’s home, you also need to offer other things that sweeten the pot,” she says. Those things can be things such as short inspection, flexible on closing date, and post closing occupancy.”
That means the closing goes as planned, but the buyer and seller determine ahead of time how long the seller can stay in the house before moving out.
“That’s a huge deal sweetener. The seller gets the money, but they don’t have to hurry up and get out. They have time to move somewhere else,” she explains. Sometimes, the time period is anywhere from two weeks to three months.
3. Find a lender who closes on time, every time
Be willing to use a lender with proven reputation at hitting their dates and getting the deals to closing. This helps selling agents and home sellers know that these lenders have done a thorough preapproval, too, and that their reputation for doing good business is strong.
4. Put in more earnest money
Earnest money is the amount you put into the pot when your offer is accepted. The more earnest money, the more serious you are about buying the house.
You apply the earnest money to down payment and closing costs when you close. So it doesn’t cost you anything extra to put in a larger chunk of earnest money. You just need it sooner than you would if paying all costs at closing.
5. Negotiate shrewdly but politely
“Selling a house or buying one is hard enough without someone not being good or cooperative,” she says.
Christopher Zoller, president of the Miami Association of Realtors Residential Board of Governors, explains that a really solid pre-approval letter can mean a whole lot to a seller.
“It gives you strength of power, and now that the world knows that the banks are lending more than they were last year, the sellers look favorable upon that just as they would a cash buyer,” he states.
Miami peaked a while back at nearly 70 percent cash offers. It is down to about 55 percent right now. But Zoller says that now that interest rates are below 4 percent for 30-year terms, many of these cash buyers come in with all-cash offers, but then by closing, they have gotten a mortgage anyways. It’s all legal, he says.
“A person that has to put a contingency in their offer of getting a loan might want to pay a higher price for the property,” Zoller says. “At the end of the day, our sellers don’t care where their buyer comes from.”