How Does a First Time Home Buyer Compete With All Cash Offers?

Real Estate Agent with The Eric Steart Group of Long & Foster Real Estate MD 586955

I'm seeing a pattern these past few weeks.

My last three offers I submitted for my first time home buyers were multiple offer situations.  In each case a cash offer was selected.

  • The first house had 13 offers - all cash.
  • The second house had 12 offers - six cash, six FHA loans
  • The third house had more than six offers - at least half were cash.confused about the market

To be clear, the third house we put an offer on was a near perfect foreclosure offered at $354,900.  It would appraise at around $425,000.  Our offer was $395,000 (FHA) closing in 35 days (buyer had 800 credit scores, good income and down payment).  The bank accepted an offer of $370,000 - CASH closing in 15 days.  What??!!

So where's the cash coming from?  401K's and mutual funds!!!  After chatting with the listing agents I have discovered that half of the cash offers are coming from retirement funds (I suspect a lot of the other cash came out of the stock market last year and was put in cash positions).  Many people are dumping them, paying the 10% penalty and using the cash to buy houses. 

Some of my first time home buyers anxious to take advantage of the $8,000 tax credit are exceedingly frustrated and want to give up.  I can't blame them, how do you compete with that kind of cash when the current loan environment is so volatile and cash is a sure thing?

 So I ask, "How does a first time home buyer compete with all cash offers?

Comments (11)

Erik Hitzelberger
RE/MAX Alliance - Louisville REALTOR-Luxury Homes - Louisville, KY
Louisville - Middletown Real Estate

Dan - The best way I've found to overcome this to to get an offer in first.  While some banks / sellers hold out for multiple offers others do deal with the first offer.  I've literally submitted an offer within a couple hours of the property hitting the market and beat everyone out because it was the only one submitted that day.  Of course, this takes a lot of coordination and flexibility.  Good luck. 

Aug 17, 2009 09:00 AM
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

Erik, So far this is the only way I have been able to beat these cash offers.  I agree. 

Timing is critical and moving quickly is key, however, many times the banks wait several days before they review offers and it makes it tough.

Aug 20, 2009 01:54 AM
Irene Kennedy Realtor® in Northwestern NJ
Weichert - Lopatcong, NJ


We're not seeing many multiple offers and those few rarely have an all-cash bidder. I do find that non-first timers aren't interested in fixing up. Perhaps your folks should look at homes that need more work (not necessarily dumps!) so that they're not going head-to-head with the 401K crowd.

Aug 22, 2009 01:07 AM
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Dan, I had the same thing happen with an offer I wrote in DC.  Sometimes if the house is less than perfect, the listing agents get nervous about FHA or VA offers where the lender might get picky about the property condition.

Aug 25, 2009 03:04 AM
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

Patricia - good point.  In that one case though, the house was perfect (yes, perfect) and they took an offer that was $25,000 below our offer (FHA).  The bank made the decision - I know the agent, he was mystified at their choice because he could vouch for me and my client (who was in this case, my son).  Go figure.

Did you ever get Zillow on your iPhone?

Aug 25, 2009 03:32 AM
Monique Combs
Royal Shell Real Estate - Bonita Springs, FL
Royal Shell Real Estate - Monique Combs


It is very frustrating with these banks. Their are some great buy on homes that are not distressed. They sellers seem much more negotiableand pricing better.  Many people commute to Southern Maryland where the prices are much cheaper than DC and the metro area. The commute is about an hour to DC and you don't have the stagnant traffic as you do around the beltway! Dunkirk, Huntingtown are wonderful areas and about a 20 minute communte to DC.

Sep 07, 2009 12:36 AM
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

Hi Monique,

My wife is from Southern MD, we were just out on Breton Bay today for a cruise!  Her father, Sanford Brooks, managed the Chalk Point and Potomac River Generating Station in his day before he retired.

I love Southern MD, it is a scenic place to live.  I just sold a home in Ben Oaks, a wonderful new community just south of the Persimmon Hills subdivision in Mechanicsville.  The prices are now very attractive and Marrick is doing a fantastic job with the quality of their product.  I am considering buying a home in the community as well, perhaps sometime in the next year.  The nice thing about Ben Oaks is that it is situated between Washington, DC and the Naval Station on the PAX River allowing you to work at either place and have the same commute.

I am hoping to make the Blessing of the Fleet on October 4th.  It is one of my favorite events in Southern MD at this time of year:  If you haven't been to it before, check it out, you'll love it!

Sep 07, 2009 02:01 PM
Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Not all of these cash offers are coming from prospective occupants. 

I'm working with an investment consortium that has a $4Million budget.  Investors are buying a lot of these homes for rehab and resell.

Oct 07, 2009 10:40 AM
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

Lenn, That seems to be the case. 

The money that I mentioned came out of the stock market I suspected was being used for investment purchases.  It seems to makes sense as the lion's share of the purchases these days seems to be either first timers or investors.  Certainly the first timers don't have that kind of cash (unless it was a gift from their folks).

What do you suggest Lenn - How can these buyers whoe have to finance their purchases effectively compete with that kind of cash?  Any thoughts?

Oct 08, 2009 12:09 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Dan - Oh I'm feeling your pain.  Here in Los Angeles & Ventura counties, we're seeing the same thing, financed offers losing out to lower cash offers.  Every client I am working with right now has been a victim of this scenario.  It is really frustrating too and just recently, I blogged about what two of my clients did to prevent this from continuing to happen to them.

I don't know what the solution is for this problem but I am sure glad to see that the tax credit was extended, which will give many of my buyers more time to find a property to buy.

Nov 14, 2009 04:28 PM
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

Donne - As long as there is cash available for some buyers, others who will use financing will continue to struggle to make their offers go through.  The banks clearly want the cash and will take lower offers if the cash is good.  I now have a heart to heart talk with my first time home buyers before we start looking at houses to let them know the challenges they will face.  Educating them is key and some times a little hand holding will be in order.

Nov 15, 2009 02:01 AM