It was love at first sight.
Scott and his wife had found the perfect home. It was within their $250K budget, in a great neighborhood close to a good school, and only a short drive away from work. They decided to make an offer immediately after the first viewing, and, because they were pre-qualified for a loan, directed their agent to prepare their bid.
A few hours later they got the call they’d been waiting for – only it was bad news.
“The seller has accepted a cash offer, I’m sorry,” their agent said.
And just like that, the couple went from love at first sight to heartbreak.
As a Realtor for ERA iRealty in Plano, Texas, I see this loan-versus-cash-bid scenario play out every day. And it’s not just Plano. It’s happening across Texas, where the real estate market is hot and inventory only stands for 35 days, but you can still snatch beautiful homes in up and coming communities for as low as $200,000. For many prospective homeowners in Texas, the bidding war is no joke – properties sell within hours and it’s not uncommon to have 15-20 bids on one home.
Over the last five years, cash buyers – most of whom are out-of-state investors looking to convert homes into rental properties – have begun to disrupt the loan-dominated financing model and give families looking to buy homes a real run for their money. Most of the race is happening with homes that offer the most for the least – good home, good neighborhood, good price – usually $250,000 or less. In that price range, on average, for every 10 homes sold, four are sold to cash bidders and six are sold to loan bidders – almost an equal split.
In Collin County, one of the state’s most in-demand markets thanks to an influx of new residents chasing jobs at Toyota, JPMorgan Chase, Liberty Mutual, FedEx or one of the other firms fueling the economy, this bidding war is both familiar and disheartening.
But money doesn’t always talk louder in the form of a bill.
Here are six ways I’ve helped homeowners win a loan-backed bid against a cash offer:
1. Work closely with your lender:
I mean very closely – to the point of having their cell phone number memorized. Your lender is a vital piece of this puzzle – make sure you know exactly what you need to have to make a complete bid.
2. Get fully approved for a loan:
Being pre-qualified is not enough in a competitive market, where waiting several days – or even hours, in some cases – to get fully approved for a loan can cost you the home of your dreams. So before you bid, get your loan approved contingent on appraisal of the home value. Taking this one extra step will put you on the same footing as cash bidders in the eyes of the seller’s agent, who will see your approval ‘as good as cash.’
3. Have your lender call the seller’s agent to give them peace of mind about your bid:
A phone call immediately after bid submission from your lender can go a long way in reassuring the seller that your loan-backed bid really is as good as cash, especially if it is coming from a trusted, certified third party.
4. Write a personalized letter to the seller expressing your interest in the home:
When you have a seller who is attached to their property and interested in seeing it go to the right buyer, a personalized letter could be the strategic advantage that gets you a winning bid. In many cases, cash offers are made by investors looking to either flip the home or convert it to a rental property. If you are a couple looking to raise a family in that home, stating that intention in the letter could appeal to the seller’s emotional side and close the deal in your favor.
5. Submit a complete, clean contract:
The less work you make for the seller’s agent, the better, so please, send a contract with legible writing, complete responses and all the necessary information. If you can resist, don’t ask for closing costs or home warranties, and don’t leave anything unanswered – if an agent is confused or delayed by your contract, they’ll simply move on to the next in the pile.
6. Give a higher offer than the listing price – and cash bid.
If you can afford it, offering between $5,000 to $20,000 on top of the asking price may be the most surefire way to close the deal against a cash bidder. In the end, money talks – no matter what form it’s coming in.