Working with homebuyers with financing can sometimes be an uphill battle, especially in a competitive real estate market with low inventory. Losing an offer is frustrating for your buyers, but don’t throw in the towel as soon as you hear the words “cash offer.” There are many different ways to beat a cash offer on a house by getting creative and strategic. Here are 10 of the best tried-and-true tips on how to compete with cash offers.
Disclaimer: This article contains suggestions for informational purposes only and does not offer legal advice. Laws and restrictions vary by area. Before using any of the techniques listed, check with your local real estate commission and attorney for guidance.
What Is a Cash Offer in Real Estate?
“Cash is king” is a common phrase in many industries, but it definitely applies to real estate purchases. A cash offer is when a homebuyer doesn’t require financing (like a mortgage) and can pay for the property in full with cash.
Why Is a Cash Offer Better?
Cash is an appealing choice for sellers because it is usually ready to go, and they don’t have to risk many hiccups in the closing timeline. The mortgage lender usually requires inspections, appraisals, and repairs, so there are more logistics and obstacles to overcome when buyers are financing a home.
10 Ways to Complete With Cash Offers
Since you’ll have clients with many financial backgrounds, agents need a strategy ready to make their offer stand out for every different type of transaction. When you don’t have a cash offer, here are the top 10 ways to successfully beat them—even in a red-hot market!
1. Use a Cash Lender
If you’re wondering how to beat a cash offer on a house, one of the most straightforward methods is to transform your offer into a cash offer with a cash lender. Cash lenders were born to help mortgage buyers compete with cash buyers. They will buy the home with cash and then work with the buyers to refinance or purchase the property after closing.
Here’s an example of how it works:
- Get qualified with a cash lender like Homeward Mortgage
- Find a house to purchase
- Homeward will place a cash offer on the property
- Once the property is purchased, the buyer rents the property from Homeward while the loan gets finalized
Cash lenders typically charge 2%, but Homeward Mortgage’s fee is reduced if the buyer uses them for their final loan.
2. Submit Your Offer Early
Some investors and buyer’s agents believe the best strategy to win bidding wars is to wait until the last minute before submitting an offer. Don’t do this, especially when figuring out how to compete with cash offers! The adage “the early bird gets the worm” is very accurate in this situation. The more time you give before submitting your offer, the higher the buyer’s chance of giving more (and better) offers if their offer is rejected.
The Close’s Content Strategist, Gina Baker, felt this tip firsthand. Here’s her story:
I’m only licensed in New York and New Jersey, so I found a great agent to work with in Florida. We viewed a property my husband and I loved around 3 p.m. and immediately wanted to put in an offer (keep in mind, this was during the northeast migration to the south, around 2021).
She had one more confirmed property showing that was only about 10 minutes away, so we went to see it. Afterward, we still wanted to put in an offer for the previous property. It’s a good thing we hopped on it right away! The property had been on the market for two days and had 10 offers. The last showing was happening at 5 p.m. that day, and the agent was calling for an impromptu “best and highest” that evening.
Also, if you have clients looking at homes and you find they’re not quite ready to buy—you should stop right now and help them get everything in order. Use our home buying checklist to make sure they’re prepared. This prep will help you get offers in quickly and compete with even the most competitive cash offers.
3. Offer a Signing Bonus
The best way to overcome a situation where there are multiple offers is to offer a “signing bonus” if your buyer’s offer is accepted quickly. To do this successfully, you have to present the highest and best offer, but it can be a great way to compete with cash offers.
This approach allows your buyer to stand out and potentially eliminate the competition—and the seller and agent both feel like they get a fair price. Plus, if the seller doesn’t accept the offer, it stays in the mix, so your buyer can still have a chance to win.
Here’s an example:
Let’s say the list price of a home is $400,000, and your buyer is willing to pay 10% over asking.
Instead of offering $440,000 and waiting through the weekend, structure the offer so the price is $420,000—if the seller accepts the offer within the next four hours, the sales price will be $440,000.
This creates a $20,000 bonus just for accepting your offer sooner!
4. Be Memorable & Likable
Getting an offer accepted over others is a competition. Home sellers compete for cash, but you must compete to get your buyers to the closing table, and slipping through the cracks is no way to win a competition. Being likable and memorable is key!
Listing agents might deny it, but professional and polite agents are more likely to get their offers accepted. An agent who lacks professionalism, is unfriendly, or oversteps boundaries isn’t someone people like to work with. So, if you want to beat out a cash offer, kill them with kindness.
Here are easy ways to be more memorable and likable to the listing agent:
- Communicate consistently: Start building trust with the listing agents as soon as you schedule the first showing. Be friendly, answer texts quickly, and be respectful of the listing.
- Leave unique feedback: Instead of leaving generic feedback on the listing, mention specific things your buyer loved, like the style of the home, the neighborhood, or how they can see themselves living there. This extra effort can leave a great first impression and make them feel emotionally connected to you or your buyers.
- Send an introductory video: Record a quick introductory video of yourself to the listing agent. Due to Fair Housing regulations, don’t include your clients. Let them know you will submit an offer and ask them to keep you updated on any status changes. Videos make people feel like they’re talking directly to you and are more personal than text—plus, they stand out from all the other buyer agents.
5. Offer to Cover the Appraisal Gap
One of the main reasons why a cash offer is better is that it’s simpler—there are more requirements when a mortgage is involved, like an appraisal. Bidding wars can sometimes cause sales prices to rise far beyond what agents or appraisers can realistically justify, which can cause financing issues for buyers.
The difference between the actual sales price and the lower appraised value is called an appraisal gap. If your clients are in this situation, buyers can mitigate the risks for the seller by offering to cover an appraisal gap. This strategy means your buyers will put up additional money for the down payment and closing costs.
For example: if a property is marketed for $400,000 and it gets bid up to $420,000, the financed buyer may agree to bring in an additional $20,000 if the property doesn’t appraise at $420,000.
Of course, buyers may not jump at this idea, but it can be instrumental in highly competitive situations. Remind them they will only need this money if the appraisal is lower than the agreed sales price. However, here are a few ways you can suggest to your clients on how to offer an appraisal gap:
- If they don’t have the additional funds for an appraisal gap to try to restructure their loan to a lower down payment option
- Have them ask parents, grandparents, or even borrow from their 401(k) to cover the gap in the event the appraisal comes up short
Pro Tip: It may be wise to discuss this with your clients when you start looking for houses, not when their emotions are tied to a property. Use a house hunting checklist to help you broach the subject.
6. Have Your Buyer Pay Your Commission
Figuring out how to beat a cash offer on a house is challenging because there isn’t a single method that will work every time, so you’ll have to get creative. If you’re still stumped, think about how many sellers feel that it isn’t fair that they pay commissions for both their agent and the buyer’s agent. Commissions have always been a touchy topic, so here’s how Sean Moudry used the commission to beat a cash offer:
I recently won a bid on a house with an offer that was less than a competing cash offer—simply because my buyer agreed to pay for my commission.
My buyer client only had $30,000 total for down payment and closing costs. When I pulled up to the home, I noticed that the seller had chosen a limited-service brokerage that charged a low flat fee for the listing service and offered a co-op commission to a buyer’s agent.
This made it clear to me that the seller didn’t see the value of paying for an agent.
Making matters more awkward, the seller was home during the tour. After the viewing, the seller walked right up to the buyer and asked her what she thought of his home.
She politely responded that she loved the home. He smiled and said, “Then you should buy it!” She explained to him that she wished she could, but he would receive multiple offers, and she feared she would get beaten out by a cash offer, as had recently happened to her.
He replied, pointing at me, “Give me my asking price and pay his commission and I will sell you my house.” Without a second’s pause, she exclaimed, “OKAY!” Then we all shook hands, and they hugged each other.
With the handshake deal in mind, I rushed to my car and wrote the offer.
With 3.5% down and the lender covering the closing costs (with the interest rate spread), the buyer had just enough left over to pay my co-op commission.
Within 30 minutes, the offer was written, signed, and in the listing agent’s inbox. I immediately got a call from a frustrated listing agent who said, “Why would we take your offer; we already have cash offers for $20,000 more than yours.” I replied cheekily, “Because we shook on it.”
After the awkward silence, he said he would talk to the seller, but he was going to advise against taking our offer. Two long hours passed and then I got the call that the seller had signed our offer.
Was it because he liked the buyer or because the buyer agreed to pay my commission? We may never know, but she is happily living in the home today.
7. Add an Escalation Clause
An escalation clause can be part of a real estate contract, stating that the buyer will increase their offer if a higher bid is made. They often get a bad reputation, but when used correctly, they allow buyers to make their strongest offer without the risk of overpaying. This technique can place a financed offer ahead of a cash offer on a house, meaning success for you and your client.
For example, a home listed for $460,000 gets multiple offers for $470,000, $480,000, and $500,000. Most likely, the $500,000 offer from the most earnest buyers will get accepted at $500,000.
However, the buyers could offer $475,000 with an escalation clause offering $1,000 more than any viable competing offer up to $500,000. This creates the potential for them to get their offer accepted at $481,000, since the highest offer at $480,000 + $1,000 = $481,000. If this offer were accepted, it would save them $19,000 because of the escalation clause!
8. Pay the Seller’s Closing Costs
In most real estate transactions, the seller pays for the costs of the title insurance, escrow, agent fees, and homeowner association (HOA) fees. These costs can add up to between $2,000 and $29,888. However, having the seller pay is just standard practice, not an actual legal requirement, so the buyers offering to pay closing costs can be a huge advantage.
This may seem like a small gesture, but this strategy can go a long way with some money-conscious sellers. Make sure to get estimates of the fees before including this in your offer, or set a limit on the costs your buyers will pay based on their budget.
9. Give the Seller a Flexible Possession Time
Many sellers need to buy a home at the same time that they’re selling, which can be nerve-racking. You can give some peace of mind to sellers and compete with cash offers by offering a flexible purchasing timeline. Of course, cash offers can also have flexible possession dates, but they aren’t always offered. There are two main strategies buyers with financing can use to give the seller more time to move:
- No-cost rent-back or leaseback: If a seller needs time to stay after the home is sold, then a no-cost rent-back can give them time to stay in the home long after it’s been sold. Most states provide a pre-approved form for post-occupancy. If your state doesn’t provide these forms, advise your client to have a lease drafted by a local real estate attorney. Remember that FHA and conventional loans only allow 60 days of flexibility, but buyers can qualify for an investment loan to extend the time further.
- Replacement home contingency: This is a two- to four-week contingency for the seller to find, contract, and inspect a replacement home. If the seller cannot complete this by the end of the time period, they may extend the time, or either party can terminate the contract. This technique avoids the 60-day occupancy requirement, but the contract could be terminated if the seller cannot find a replacement home.
10. Communicate
It sounds simple, but many buyers’ agents send offers without calling or texting first. It’s best practice to make accepting an offer as easy and appealing as possible for the listing agent and seller—and it’s just smart business to build trust during the process.
Consider what a cash offer on a house means for the seller and the agent—easy and hassle-free. To compete with that, you must build a relationship and keep your communication clear and consistent. A great way to do this is by calling the listing agent (yes, on the phone!) to clearly understand the seller’s situation and how you can draft an offer that meets their specific needs. Always call or text the listing agent to let them know the buyers submitted an offer and ask the listing agent to confirm they received it.
FAQs
How do you counter a cash offer?
It is a challenge, but there are many ways to compete with a cash offer. Make it easy for the seller to accept your offer by getting creative; consider paying for a seller’s closing costs, using a cash lender, adding an escalation clause, and communicating well with the seller’s agent.
Do all cash offers ever fall through?
Cash offers can fall through, just like financed offers. Since most contracts have an option period for a specific length of time, buyers have the opportunity to pull out of a contract for any reason during that time. For example, an investor might recalculate the numbers and decide to go in a different direction.
How are so many people making cash offers on homes?
People making cash offers on homes are often investors. Non-investors making cash offers on homes could include people who’ve recently sold a home and are using their profits to purchase something new.
Bringing It All Together
What does a cash offer mean in real estate? For home sellers, it’s usually appealing because it’s easier. For competing homebuyers and agents, it means that the home is more competitive. However, there are plenty of strategies on how to compete with cash offers. Stay positive, think about the other concerns a seller may have, and craft an offer to meet their needs.
Got other ways to beat the cash offer competition? Let us know below!
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