Last week I was asked by a first time home buyer about how to compete with a cash offer. The short answer is that it depends. If the home is bank owned or a business is selling it competing against a cash offer is tough unless the offer is super low.
In private home sales, sellers will sometimes reject cash offers if they get a much higher offer from someone who is using financing.
As a general rule offers that include larger down payments are better than offers with smaller down payments. It is hard to compete with a cash offer with 3.5% down. It is even tougher for buyers who are asking the seller to pay the closing costs.
An offer on a home isn’t just about offering the highest dollar amount. There are other terms the seller may be looking for like a particular closing date or more earnest money. Buyers who have a little flexibility on the closing date and who are willing to allow the sellers a little extra time to move out may be able to offer less.
Usually, a cash offer will win if it is for the asking price or close to it. Cash offers are more common for lower-priced homes. First time home buyers and companies that re-hab houses are competing over a small number of affordable houses. Reality isn’t like television. Most first time home buyers do not have the resources to do a major rehab . . . but that is a separate topic for another day.
My advice to home sellers is usually to take the cash offer and if it isn’t high enough sellers should negotiate for more.
