4 Ways Financing Can Beat Cash Offers


The most relevant information for home sellers, usually, is “how much.” The buyer who offers the most typically comes away with the property. But there’s another aspect that sellers need to consider: “How,” as in, “how will you be making that payment?”

Why? Isn’t money the same, regardless of method? Unfortunately not. When shopping for homes, cash is fact while financing is theoretical. Cash is real, sitting on the table, while buyers using financing could potentially back out of a purchase if they’re denied the mortgage. For confidence, many buyers would be happy to take the money and run.

According to numbers from Realtytrac, around one in three homes is purchased with an all-cash offer. Some of these are because of the largesse of the buyer, and many are made by investors who hope to turn a profit by “flipping” the home. The rest of us need financing to have any chance of affording a home. So how can we win when facing down a competitor with cash to burn?

Offer More Earnest Money

Earnest money refers to funds that a buyer places upfront with an offer. This is different than a down payment. Although the down payment and closing costs will be fully paid at the end of the homebuying process, earnest money is a good-faith deposit that demonstrates your intentions to follow through with the purchase. Most sellers require such a deposit, lest buyers leave them hanging while considering other options.

The formula is simple: The more earnest money you offer, the more seriously the seller takes you. Consider offering the entire down payment upfront (you’ll get your money back if appraisals come back negative). Investors are all about earnest money, and this will at least put you on equal footing.

Offer More Money in General

This sounds like a gut check but it usually isn’t. Often, “offering more money” is as simple as meeting the asking price for the home. All-cash buyers, or at least investors, are looking to create profit by flipping the home. That means they need to spend as little as possible in order to acquire the property, which results in low-balling the asking price. Sometimes this cash offer is still enticing to the seller, because of its guaranteed status.

You need to estimate much the seller values the simplicity of a lower cash offer compared to a higher, financed offer. Don’t be fooled into a bidding war if the cash buyer is coming in strong.

You can't place a value on family. But when it comes to beating cash buyers, they may be the deciding factor!

You can’t place a value on family. But when it comes to beating cash buyers, they may be the deciding factor!

Impress with Personality

The seller might waver at a higher financed offer just because it’s less solid. You can negate this reaction by impressing them in person. If you come across as a slouch, they may question your integrity as a buyer (unfair as that may be). Treat it like a business decision and present yourself professionally.

You can also appeal to the seller’s more sentimental nature. If you plan on having children, make comments about the yard or other features that would be great for kids. If it reminds you of your childhood home, bring it up. Many people love their homes and care about its future, even if they’re selling it now. Finding the buyer who will treat it right may be the tiebreaker when competing against a cash offer.

Look for Foreclosed Properties

Try to get an idea for how many homes are being purchased with cash in your area. If investors are grabbing a multitude of properties, or you’re just paranoid that they’ll swoop in and undercut your own bids, consider looking for recently foreclosed homes.

Government-backed housing finance agencies such as Fannie Mae, Freddie Mac, the FHA and others look to help individuals and families when they list foreclosed properties. They give independent buyers a few days’ head start when bidding before private entities are allowed to take part. This takes cash offers out of the equation for homes already being offered at affordable prices.

No matter which of these tactics you use to compete with all-cash buyers, the first thing you should do is get pre-approved for a mortgage. If you come to the table with concrete proof that you qualify for financing, that will inspire confidence in the seller. And, almost as valuable, a sense of confidence for yourself that you can grab this property.

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