Win Against Cash Offers In The DC Real Estate Market
We employ specific strategies for buyers who are financing a DC real estate purchase and likely to compete against cash offers. We share a few of our top tips, along with an advisory that playing hardball in real estate can be risky.
What is the Easiest Way to Win Against Cash Buyers?
Buy your way out of second place.
One solution to winning against cash offers in the District is to throw an insane amount of money at it. Cash buyers rarely want to escalate sales price beyond the point of reason. In fact, they usually expect a better price for paying cash. So if you want a property badly enough, and you are certain it’s going to be a property that will appreciate well and one you’ll retain for many years, it’s a viable option.
But rarely the best option. There are other ways, depending on your situation, that DC home buyers can compete and truly come out ahead
Why Cash Is 'King'
Here are some of the reasons DC home sellers prefer cash offers to those with financing:
- It’s worry-free. A pre-qualification is not a guarantee of lendability. Financed transactions, even those without contingencies, carry a degree of risk to the seller. Cash sales with proof of funds assure the seller to the best possible extent that the transaction will not fall out of escrow for lack of funding. This is huge, because properties that re-list after a canceled transaction often ultimately sell for less than they would have had another competing offer been selected. No one wants to have multiple escalated offers only to end up with nothing.
- Shorter transaction cycle: The turnaround time for cash transactions is much shorter than a financed transaction, which is lengthened to allow for loan processing time. Cash transactions can close as quickly as the title process can be completed and, if it is a condo or coop purchase, the required rescission periods expire. Five to ten days, on average.
- No appraisal requirement. Sellers don’t have to worry about the buyer’s willingness or ability to cover the difference between a low appraisal and the contract sales price. The cash buyer typically opts to forego appraisal, whereas a lender requires one most of the time. With GCAAR discontinuing use of the Buyer Financial Information Statement in 2022, sellers are more concerned than ever about buyers’ appraisal resources.
- Fewer contingencies on cash offers. Because there is no danger of a loan denial, cash buyers can make an offer as ‘clean’ (sans contingencies) as they wish.
- No underwriting conditions. If, for instance, a house needs significant or structural repairs, more than 35% of a condo or 35% of the building in which the project is located is commercial space or allocated to mixed-use, a condo has an investor ratio that exceeds underwiting limits, an association is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation, the transaction is ‘ineligible’ according to Fannie Mae underwriting guidelines,. There are many conditions that affect warrantability with a financed transaction, while a cash buyer can sail on with the transaction regardless of these considtions.
Bullet Points
- Get pre-approved first
- Marshall all your financial resources
- Partner with an experienced agent
- Prioritize needs + wants before searching
- Discuss market conditions with your agent
- Be realistic
- Don’t waffle when opportunity knocks
Caren L
While other agents said, “This is what you need to do;” The Isaacs Team said, “We can do this for you!” Our process was smooth and quick, and they designed a strategy and negotiated a sale well above our asking price; and a purchase price below asking – both in the same market.
Related to this
Some Approaches We Take
All In
- Extremely aggressive offer price and 100% clean offer. This happens in highly competitive situations where the buyer absolutely must have the property in question, either because it is uniquely suited to their needs, an above-average investment, or because the buyer is simply emotionally committed to it. The buyer will ‘overpay’ for the property, usually with the understanding that they will retain it well past the breakeven point to cover future listing and selling expenses, and achieve a profit. We recommend a pre-offer inspection, structural engineer’s report and possibly a pre-offer appraisal, if time allows. This is an option for those with extremely solid financial resources who are supremely confident their loan will be approved. Not for the faint of heart or those with concerns about their financial resources.
Aggressive But Measured
- Offer over list price commensurate with value of the property, both documented (past) and perceived (projected), with a modified appraisal contingency, otherwise ‘clean,’ with added incentives that matter to the seller, such as closing cost coverage (often more valuable in part to seller than higher offer price because as the price rises, so do seller costs like commission, transfer tax, etc.), or a free rent-back. We recommend a pre-offer inspection, structural engineer’s report and possibly a pre-offer appraisal, if time allows. This is a popular option for those with solid financial resources who can make up a portion of a low appraisal and are highly confident their loan will be approved. With this tactic, buyers may lose a few properties before finding success.
Avoiding competitive Situations Altogether
- These strategies carry their own sets of provisions and risks, so we evaluate options carefully with our clients, tailoring their use to that client’s position and goals.
- See below
If Resources Are Limited
What about first-time home buyers who may not possess vast resources?
- Drop your price point: Be the big fish in a smaller pond;
- Increase your price point: Are you in a “tweener” price range? Try competing at a slightly higher price point that will be on the lower end of the next tier. You may find there’s less competition there;
- 25%+ downpayment: If you’re trying to keep your monthly payment low, but have funds to put toward a larger downpayment, sellers may have more confidence in your financing outcome. Sshowing you have resources and a lower payment could also trigger an appraisal waiver by your lender’s automated system, and waiving appraisal is a benefit to sellers;
- Omit the appraisal contingency: Even without a greater downpayment, buyers can forego an appraisal contingency, removing much of sellers’ concern about financed offers. You must have the funds to make up for a low appraisal if it should occur, on top of your downpayment and closing costs. This is paid as cash as the closing table, so this strategy is dangerous if you don’t have the resources to make up the difference, or you have escalated price well beyond the ‘comp’ range;
- Eliminate as many other contingencies as is safe: What’s ‘safe?’ We evaluate that with you, and it’s per property and buyer. This strategy almost always includes a pre-offer inspection, so don’t stall on that because time for this is always extremely short and last-minute inspections are difficult to get;
- Escalate price: But know when to stop on escalation: Don’t put yourself into a position where you could be ‘upside down’ on home value for years to come just to snag a pretty property. Think of your purchase as an investment first, a prize home second. Sometimes ‘winning’ is walking. Do understand when to escalate as far as you can, though. Escalation is common in DC and some properties are priced low to emcourage competition. Sometimes, in certain circumstances and price points, there really won’t be another house–or the next house (and every one after that) will be even more expensive. Your agent is key in this discussion;
- Search stagnant properties: Stop competing for the homes everyone else is bidding on and shop around that house. Sometimes there’s a good property in the same neighborhood or building as the shiny object everyone else is bidding on. It may have listed at an inopportune time, not be presented well, or lack one component others think they need, but you don’t. That’s the property to focus on. As it racks up days on market, the price is more negotiable. Here’s your chance to get a ‘deal’ in a seller’s market!
- Find Fixers: Many DC buyers are looking for turnkey properties and flippers are looking for properties they can buy for a song because they require a greater level of renovation than most buyers can handle. Find an in-between property; a structurally sound home that seems to require mostly cosmetic updates and relatively straightforward repairs/replacements such as HVAC, flooring, kitchen & bath makeovers, landscaping, new deck, and/or new roof. If it’s in the right location, you’ll build equity faster than the buyer who bought the highly-escalated property you yearned for and you’ll live in the same neighborhood. Inspections and permit research is key, along with an understanding of updating costs and the ability to fund them after closing;
- Private Exclusive inventory: We saved the best for last. Guess what? There’s a huge pool of inventory the rest of the public doesn’t know about. Compass has a massive back-channel of PE and non-public ‘coming soon’ listings we make available to you with a click of a button, tailored to the neighborhoods and property types you want. Shop off-market, find your home, make a persuasive offer to take it off the market. Most often, you’ve come out ahead on price by avoiding a bidding war. The ultimate win!
There are nuances to all of these approaches, and they represent just some of the ways to win in a competitive situation against cash buyers in the DC real estate market. There is no ‘one size fits all’ solution and each buyer’s circumstances and tolerance for risk are slightly different.
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