Buying a house in today’s market is no easy feat. High demand and limited home inventory have created a competitive landscape. On top of that, prospective buyers who plan to take out a mortgage to purchase a home are sometimes bidding against those making all-cash offers.
All-cash real estate offers are at their highest point in a decade: At the start of this year, 32% of home sales went to buyers who could offer the full amount of the sale upfront. In 2021, those who were able to purchase a house in cash -- instead of financing through a mortgage loan -- were four times more likely to win a bidding war, according to Redfin.
Although cash offers are appealing to sellers, they’re not guaranteed to win every time. Don’t stress if you’re not able to make one: 80% of buyers finance their home purchase with a mortgage.
Beating an all-cash offer isn’t impossible. If you’re a prospective homebuyer who plans to take out a mortgage, consider these ways to make your offer competitive against all-cash bids.
What is an all-cash offer on a home?
A buyer who makes an all-cash offer can purchase the house outright without a mortgage or other type of financing. That means the buyer has the entire amount for the property on hand and can transfer it to the seller via check or wire transfer.
All-cash buyers are often investors and vacation buyers. The rest are homeowners who made enough money selling their previous home to purchase the next one in cash.
The increase in all-cash offers among homeowners may result from rising equity, as home prices have increased in the past few years. Another explanation is that people are moving longer distances, which allows them to house-shop in lower-cost areas.
Why are cash offers attractive for sellers?
Home sellers often like all-cash offers for a few reasons:
- Simple and straightforward closing: With no mortgage in the equation, the buyer and seller can close on the home quickly.
- No financing contingency: This contingency lets buyers off the hook if their financing falls through, but is not necessary with an all-cash transaction.
- May not have an appraisal contingency: An all-cash buyer may also waive an appraisal, which helps speed up the closing process. When you borrow a mortgage, the lender requires an appraisal before it can approve the loan.
- Less likely to fall through: Sellers don’t have to worry about financing not getting approved with an all-cash sale.
How to compete with an all-cash offer
Here are some ways to put your best foot forward and compete with all-cash buyers.
1. Find out the seller’s priorities
Before putting together your offer, ask your realtor to find out more about the sellers. Your agent can call the listing agent for insights into why the sellers are moving and what they’re looking for in an offer. Try to find out what’s most important to the sellers and structure your offer accordingly to gain a competitive edge.
Besides prioritizing the highest bid, for instance, sellers may want a fast closing or, alternatively, the option to stay in the house for a few months while they search for their next property.
“Buyers may be able to offer a fast closing if they can secure that sort of guarantee from their lender,” said Clare Trapasso, executive news editor at Realtor.com. “They can also do the opposite and offer the seller more time in the home, potentially even buying it and then renting it back to the sellers if the sellers have a longer timeline.”
2. Get preapproved for a mortgage
Getting preapproved for a mortgage before you put in your offer is key. While mortgage prequalification only involves a surface-level review of your finances, mortgage preapproval is much more in-depth. It shows that the lender has done a comprehensive review of your finances and is likely to approve you for a certain amount.
Mortgage preapproval helps reassure the seller that your offer is unlikely to fall through due to issues with financing.
“Buyers who don’t have pockets that deep can still show sellers they are serious by having preapproval from their lenders,” said Trapasso.
3. Increase your offer and down payment
If you can afford it, making a higher offer can help you stand out in a multiple-bid situation. Sellers want to turn a profit, and they may prefer a higher offer that uses financing to a lower one that’s all cash.
Putting down more money upfront may also make your offer more attractive.
“Make as large of a down payment as possible,” said Trapasso. “A buyer who can put down 20% may be looked upon more favorably than one who only puts down 10%.”
4. Consider waiving contingencies
Contingencies can protect homebuyers, but sellers may want to eliminate as many potential roadblocks as possible. Eliminating some contingencies from your offer could help you compete with an all-cash bid.
Some common contingencies include:
- Financing contingency: Also known as the mortgage contingency, this clause lets buyers cancel their offer and get their earnest money deposit back if their mortgage falls through. Consider waiving it if you’re confident about your ability to secure your home loan.
- Home appraisal contingency: With this contingency, you can back out or renegotiate your offer if the home appraisal value comes in lower than the amount you offered. If you waive it, you’ll have to make up any difference in cash.
- Inspection contingency: In very competitive markets, some buyers waive the inspection contingency or conduct a quick preinspection before making an offer. Waiving your inspection is risky, though, as you could end up buying a house with major structural issues.
Don’t forget that you can customize your offer however you like. For instance, you could limit the inspection contingency to major repairs or waive sellers’ responsibility up to a certain dollar amount. Similarly, you could waive an appraisal gap up to $10,000 or whatever amount you’re willing to pay out of pocket. Work with your realtor to determine which approach works best for you.
5. Boost your earnest money deposit
The earnest money deposit is money that you put down before closing to show that you’re serious about purchasing the home. Increasing your deposit can show you’re committed to buying the property and confident that the deal won’t fall through. If you can afford it, offering a larger deposit upfront can lower risk for the seller and may help you compete against an all-cash bid.
6. Write a personal letter
Letting go of a home can be an emotional process, and some sellers want to learn more about the people who will be living there next. Including a heartfelt letter with your offer may help you connect with the sellers and influence their decision.
That said, some brokers discourage buyers from including personal letters due to the potential for violations of fair housing laws. Speak with your realtor about whether including a letter would be possible and beneficial to your offer.
7. Make the process easy
Most sellers want a hassle-free transaction that won’t fall through, so try to make your offer clear, straightforward and easy to accept. Put forward your best offer and include your preapproval or mortgage commitment letter from your lender.
Avoid putting any extra demands on the seller, such as a deadline for their response or specific closing time. Find out the seller’s timeline and work with it as closely as you can.
By keeping your offer simple and stress-free, you can be a competitive candidate against other offers, including all-cash ones, and boost your chances of winning your next bid.
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