How To Beat A Cash Offer On A House?
If anything, truly encapsulated the term “feeding frenzy,” it was the housing market during and immediately following the COVID pandemic. Whether people wanted to move into more comfortable homes as they spent more time there, take the leap and get on the property ladder or take advantage of then-low mortgage interest rates, demand was at unprecedented highs. Conversely, the housing supply was at a significantly low point. There were more buyers than houses, and this drove prices through the roof.
In this climate, cash proved to be king. Many hopeful home buyers found themselves outmatched by cash buyers who could walk in, make an offer and proceed to completion without having to go through the layers and layers of process, from valuations and surveys to mortgage approval. Bidding wars commenced, prices soared ever higher and those with traditional financing (e.g. mortgages) were left behind in many cases.
In this guide, we will discuss how to beat an all-cash offer on a house. But we will also cover the issue from the seller’s side, delving into the benefits of a cash offer on house. Let’s get started.
What Is A Cash Offer
The real property world can be complex, particularly for lay people who are approaching a purchase or a sale for the first time. It is important to clarify terms and ensure we are all on the same page, so to speak. That said, a cash offer is extended by a buyer who already has these funds in hand – or the bank. They do not require outside financing and they do not require a mortgage. This also means they can bypass all of the hassles of obtaining a mortgage agreement in principle, having to wait on survey results and securing (hopefully) a mortgage.
On the side of the seller, accepting a cash offer on the house isn’t any more profitable, per se, than accepting a finance offer. They will get paid upon completion in either case. But – and this is a big caveat – cash does set buyers apart in the competitive housing market. This is because cash facilitates a faster process. It is far less complicated. “Here’s my offer; here’s my money. Deal?” While perhaps not quite that simple, you get the idea. It is vastly streamlined for both buyer and seller.
Another factor to keep in mind is contingencies. These are clauses in the sales contract that put certain conditions to be met by the buyer and/or the seller. These clauses must be agreed upon before the sale can proceed. A big contingency that cash buyers can skip right over: is financing. They already have the money.
Note: Just because a cash buyer claims to have the financing necessary to complete a sale doesn’t mean the seller should take them at their word! Always verify funding before proceeding. A Proof of Funds letter from their financial institution is one such way to do this. Check, and double-check.
Another contingency that can be skipped over is the appraisal or inspection step. Traditional buyers must complete these steps as they are required by their lenders. In the case of someone who is financing with a mortgage, an unsatisfactory inspection or survey can result in the lender pulling their approval. They view the property as a poor risk and of no value to them in terms of marketable assets. With a cash buyers, they can purchase a property in any condition they choose, as long as they are aware of issues and comfortable taking on the risks. They are not restricted by a lender’s requirements and can thus set their standards for purchase.
Another facet of the purchase process that is expedited with cash offers is that completion is faster, and often the forest’s worth of paperwork is reduced to just a few trees. Without lender’s fees, completion costs may also be lower.
To recap, the benefits of a cash offer on a house include:
- A more streamlined process, eliminating many contingencies that apply to traditional buyers, such as inspection and financing
- No risk that a buyer has their financing fall through
- A faster timeline to sell – and buy – may be necessary given any number of factors at play. For example, a seller may have inherited a home that they do not want or need. If they hang on to it, they risk paying capital gains tax. This is calculated largely on the increase in value from when they acquired it to when they sold it. This means an accelerated sale can greatly reduce the chance it will appreciate and put the owner liable for CGT.
As with any issue, especially one as significant as buying or selling a home, there are some potential downsides to consider when it comes to cash offers, such as:
- Cash offers may be lower than offers from buyers with financing. This isn’t always true, as we will discuss later on.
- The buyer must be thoroughly vetted. If not, it puts the entire process at risk.
- There may be tax implications for selling to a cash buyer.
- In general, there are fewer cash buyers out there. We saw a spike recently, but overall, most of the buying population will require financing.
On that last point, cash offers are becoming increasingly common in today’s market. As we all know, this can change at a moment’s notice, but for now, that seems to be the reality. We have discussed the benefits of accepting a cash offer on a house, but what about on the buyer’s side? Let’s shift gears.
How to Beat a Cash Offer
You have scrimped and saved; you have scraped together enough for a healthy deposit on a house. You should be well proud of yourself! But… then a cash buyer waltzes in, makes an offer and your dream of homeownership is not going to come to fruition now. More frustratingly, in this current market, this happens again and again.
What can you do? There are some steps you can take to make yourself – or more accurately – your offer more attractive to a seller. They are busy considering the benefits of accepting a cash offer on a house, and you need to make them stop and think about the benefits you bring to the table.
- Obtaining a mortgage agreement in principle. This isn’t a guaranteed mortgage but it is an essential first step. It shows sellers that you are serious and that you are capable of buying their house. It indicates that your finances and credits have been through a preliminary check, and should nothing change, you will be approved for a mortgage. Without an AIP, sellers will not take you seriously, nor should they.
- Ask your lender to speed up the inspection process. If they send an expert as soon as possible, you can affect a speedier completion, which is attractive to the seller.
- Schedule your inspection ASAP. Your lender will require an inspection, so arrange this forthwith. Once your offer is accepted, schedule right then. This will demonstrate your motivation and drive to complete the sale.
- Offer a little more. Cash buyers appear to hold all the cards, but you can sweeten the deal, as it were, by being prepared to pay a little more. Cash buyers tend to convey the impression that they are doing the seller a favour, so they often lowball. You can counter with a slightly higher offer.
- Make a connection with the seller. If someone has a connection to their house (as many of us do), they don’t want it to go to just anyone. Sure, many are after a profit first and foremost, but others want to “pass on” their home to someone who will treasure it and take care of it just as they did. Forge a personal connection, and introduce yourself to them. Many buyers now write a letter to the owner, explaining how they are, their hopes for the house, their dreams… What can you do to show the seller that you are the right buyer?
- Increase your deposit. If you can save a bit more and offer a larger deposit, you make yourself a more competitive player in the bidding game. This shows you are serious about the process and this property. It also demonstrates your ability to go through with the purchase.
This assumes that we are operating in a seller’s market, as we have been for a few years. However, in a buyer’s market, you may have more control and flexibility. The seller is the one trying to entice you to seal the deal. Can you offer cash back on a house sale? Yes, and this is one way that sellers will try to engage the right buyer. Just keep that in mind because the market’s tides turn, often suddenly!
Now, if you are in a position to pay with cash, we will discuss how to do so.
How to Make a Cash Offer on a House UK
Can you offer cash on a house sale? Yes. This is perfectly legal in the UK, and as mentioned, it is becoming much more common. Cash buyers come from all walks of life; they are often investors who are looking for properties on which they can make a profit. Other folks have just sold up and have the funding to move up the chain. Regardless, you may be wondering how to make an all-cash offer on a house.
The process begins as it does for most people looking for a property. You look at what’s available, you may work with an estate agent to find the right home. From there, you can enquire as to specifics, such as exact size, age and other details that matter. You also have the flexibility to buy in as-is condition, so you are free to set your standards in terms of the state of the house.
Working through an estate agent or acting on your behalf, you can approach the seller or their estate agent, if they are represented, with an offer.
Let’s back up for a moment: how much should I offer on the house for cash? This depends on a variety of factors, including:
- The overall housing market.
- The age and state of the home.
- The location in which the home is situated.
- Prices of comparable properties in the area.
- The length of time that the property has been on the market.
- Physical or legal issues with the property. For example, there may be issues related to liens on the property.
When it comes to how to put in a cash offer on a house, making your initial offer reasonable given these factors and compelling to the seller is essential. Craft an offer (getting assistance from an estate agent or conveyancer is helpful). Agree on a price; there is likely going to be some negotiation, depending on the seller’s circumstances.
You will have to show proof of funds, as we mentioned earlier. A letter from your bank, along with bank statements, is usually sufficient. At this point, you may choose to go through with an appraisal and inspection. Cash buyers often forgo these contingencies in favour of a faster sale. This is a major “selling point,” as it were, with buyers, so if you are going to go ahead with them, be sure they know this.
If you skip inspection or if the results are satisfactory, you can move towards the exchange of contracts. After this point, you cannot exit the sale without financial and legal consequences. And then onwards to completion.
In considering how to put in a cash offer on a house, be sure you have your proof of funds and that you iron out a contract with contingencies with which you are comfortable. At the same time, be aware that when sellers entertain cash offers, they expect a vastly simplified and streamlined process. Something to keep in mind.
When it comes to how to negotiate a cash offer on a house, keep your needs and goals in mind. But also remember that the other side has its own needs and goals. How can you ensure that both parties meet theirs? For example, in negotiating a cash offer, the buyer can offer to waive certain contingencies (e.g. financing, inspection) to make the offer more attractive. The seller may be willing to concede a little in terms of price so that the sales timeline is accelerated.
Cash Is King
Cash always has power. In recent years, this has proven to be especially true as cash buyers have dominated the market. This can be highly beneficial to sellers, but it can leave many hopeful home buyers out of the market. We have covered ways to compete with cash offers; the best tip is to continue to save, increase your deposit amount, decrease your debt and position yourself as a viable buyer in the eyes of the seller. Cash may be king, but that does not mean it is all-powerful.
For those who are planning to buy with cash, keep in mind your needs and goals. Skipping inspection, for example, can be a risky move. Are you prepared to take it?
The market moves fast; information is the best way to keep up.