Real estate has become a very stable source of investment returns for many companies, from multi-national investing groups to local companies that flip or refurbish homes and rent them out. One of the frustrations, however, that has emerged in markets with low inventory is that these buyers often have the ability to use cash to buy their investment properties, rather than taking out a loan.
The problem arises when first-time homebuyers and others who want to buy a personal residence need a home loan in order to make homeownership happen. Cash offers can be completed faster than loans, and they aren’t contingent on a successful appraisal and inspection process. Buyers who are looking to get someone to lend to them must figure out what to do if they bid up a house very high and the appraisal comes back lower.
So what is a home buyer to do in markets without many homes available who is interested in getting their offer accepted? Here are some options.
Already Own a Home? Sell First
For those who already own a home, selling your home first and finding stop-gap housing before buying can be a way to amass capital, essentially cashing out your equity. While this may not be enough to make a full cash offer yourself, a large down payment can be a substantial way to make your offer seem rock-solid, if that option is available.
Consider How to Make the Offer Competitive
Top real estate agents understand that a mortgage loan can compete in more markets than you think, since not every home will appeal to those with cash to spend. For instance, if you’re offering over asking price, you can choose to offer to cover an appraisal gap that appears, removing the possibility of the deal falling through just because the lender will only provide money for its appraised value. You can also agree to an ‘as-is’ purchase, choosing not to ask for repairs. Of course these are choices that come with their own risks, but if you are reasonably confident that you’ll be moving forward with the purchase, both of them can be ways to win a bid.
Another frustrating but compelling option is to up your earnest money, due diligence money, or other nonrefundable deposits that go with the offer. In the past, just a few hundred or a couple thousand dollars was expected and was sometimes refundable if the deal fell through; in competitive markets, very high amounts of earnest money and nonrefundable deposits are being promised as part of competitive offers. Showing you won’t walk away from $10,000 or more for anything other than the absolutely biggest problems with the house can compel sellers to take your offer very seriously.
Sweeten the Deal in Clever Ways, With Help From Your Agent
There are certainly cases where knowing that a home was going to a family who wanted to live there long-term, or getting a special service like free photographs, according to the Homelight Top Agents Survey, can sway a seller in a multiple-offer situation. The key is to not try to influence the seller in a way that is essentially asking them to discriminate. Instead, defer to your trustworthy agent on whether personal touches associated with the offer are appropriate or would be considered out of bounds.
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