Cash offers….while not the norm, they are certainly part of today’s real estate market. In some parts of the Washington, DC area, real estate competition is fierce. Often, “ordinary” buyers can be frozen out of the process when competing with cash buyers. Who is making these all cash offers? Well, they might be builders looking to flip a property, or lucky buyers with a cash infusion of family money or excellent savings habits!

When faced with a competitive situation with a cash buyer, there are two questions to consider:

1) Why do sellers prefer cash offers?

2) What’s a buyer to do if they find themselves losing out to cash offers?

We’ll explore both questions below.

First, why are cash offers preferable?

The big reason sellers love cash deals is that it means the buyer is qualified for the property and is not at the mercy of a bank approving a loan. No bank involvement means two key contingencies (financing and appraisal) are not part of the offer. What does this mean for the seller? A more sure deal!

The appraisal contingency is especially important because it is what allows a buyer to back out of a contract if the sales price goes higher than other comparable properties in the market (which can be the case in multiple-offer scenarios). The bank requires an appraisal to move forward to settlement. If a buyer with a loan waives this contingency, the buyer is on the hook for bridging the gap between the sales price and appraisal price in cash. If there is no bank involved, no appraisal is required.

Are all-cash offers a good idea? Read our blog to find out right here.

So, how can an ordinary buyer like you compete?

I’ll be honest with you… it’s tough! If you don’t have cash for your offer, the next best option is to talk to your lender and see if you are able to waive or at least shorten the financing and appraisal contingencies. In this scenario, you could still apply for and get a loan, you just would not make your contract contingent on appraisal and financing. However, you must be certain you and your lender are comfortable doing this! If you waive the appraisal contingency and the appraisal does not come in at the sales price, your loan will only cover up to the amount the home appraised for; therefore you’d have to come up with cash for that gap between sales price and appraisal price. Similarly, if  you waive the financing contingency and for some reason the financing falls through you will be on the hook for going through with the contract (or losing your earnest money deposit — read more about defaulting on a real estate contract here).

Another option is to just make your offer as clean and competitive as possible. To do so, you would want to talk with your Realtor to be sure you were using the strategies most appropriate for the situation. You can read up on some of our favorite tips here in our article “Losing in Multiple Offers? Here’s How to Win” and “Behind the Scenes of Competing Offers“.

Our best tips, however, are saved for our clients! Reach out if you’d like to work with us and get access to our best tips and tricks for getting our clients the home of their dreams – even in a competitive situation. You can also download our First Time Buyer Guide for some insider real estate tips as well if this is your first time going through the process.

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