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How Not to Beat an All Cash Offer in a Bidding War

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Real Estate Agent with HomeSmart Stars TX #0552717

Don't believe everything you see on TV. It's difficult to beat a cash offer, especially if your lender doesn't have you pre-approved (not just pre-qualified). Do your homework, get all your ducks in a row, use a loan officer you or your agent know and trust, and submit an offer with few, if any, contingencies.

Original content by Patricia Kennedy AB95346

Their ads are all over your television screen.  You see buyers swooning all over the house of their dreams.  And then there is a voice in the background telling them how important it is to have their mortgage lined up so they can take on the other buyers (some of whom may be all-cash) in the impending bidding war.  Just call the number on your screen, and we will help you blow the other buyers out of the water.

Well, it's a little more complicated.

The ads are not all wrong.  You do need to talk to a lender very early in your home search. And a strong pre-approval from a lender with a good reputation in your local real estate community is an important early step in the process.  If you already have a mortgage or if you have a relationship with a bank that provides mortgage loans, you can start with the company you already do business with.  A referral from your Realtor is also a good possibility, and many brokerages have in-house lenders.  

The offer you present to the sellers will include deadlines for completing the appraisal and removing your financing contingency.  If the deadlines are not met, the consequences could be severe, and your could lose the house. When the lender is accountable, not only to you, but also to an agent or brokerage that can refer or withhold future business, chances are they will try a little harder to create a smooth transaction.

I'm not saying that all lenders who run TV ads or operate mainly on the internet are bad.  It's just that many agents have had awful transactions with them, and we all have really, really long memories -  when a transaction gets funky because a lender drops a ball, a grudge is formed that can last for an entire career. And agents share bad lender stories with colleagues for years!

Another thing to keep in mind is that some of these companies are not actually lenders, but lead sellers who pass your information on to lenders who pay for referrals - and they are likely to sell your lead to a number, sometimes a large number, of sales people for actual mortgage companies.  Your phone could ring off the hook for days, and your email will likely be swamped with lender spam.

Whether you are in a bidding war or the only offer on the table, any transaction that includes a financing contingency is somewhat risky for the sellers. All cash offers can be hard to compete against, but cash isn't necessarily king.  Cash buyers often offer less money and terms that are not attractive to the sellers, and there are things you can do to be in a good competitive situation:

  • Use a lender that won't make the listing agent cringe.  That means a real bank or mortgage broker in the community.
  • Your offer should have a "pre-approval" letter attached.  This means the lender has run your credit, verified your assets and income, and run your package through their underwriters.  Many will give "pre-qualification" letters, and these usually mean you have not been thoroughly vetted.
  • A conventional loan will usually put you in a stronger competitive position than one using FHA or VA.
  • If possible, include a large earnest money deposit.
  • Work closely with your agent to craft an offer that will, to the greatest extent possible, minimize the risk the number of contingencies that would allow you to get out of the deal.

If you are refinancing your home, using a TV or internet lender might be an option to consider.  With a refi, you don't usually have do or die deadlines to meet, so delays may not have dire consequences.  But with buying, it's a whole other thing!

 

 

Posted by

Lorrie Semler, REALTOR
HomeSmart Stars

Serving your residential real estate needs in Dallas, TX and all the surrounding suburbs


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Comments (1)

Ronald Curtis
Sapphire Associates - West Palm Beach, FL
Negotiating the best price and terms for my Buyers

Hello Lorrie...

Thank you for your very informative blog. This is real estate 101 that should be in everyone's playbook.

Sep 04, 2020 03:16 PM