How To Compete With Cash Buyers

February 1, 2024


How To Compete With Cash Buyers

Still Think Cash Buyers Have The Advantage? Think Again.

The tables have turned on out-of-town cash buyers as we crush their hopes and dreams. 

You’ve been pre-approved and now you’re looking at homes. You finally find the home of your dreams and envision where the furniture will go and how great it’ll be to live there. It’s in your price range and the seller is has multiple offers on the home. So, you talk to your real estate agent about how high you’re willing to go, you make your offer, then agonizingly wait. Then, you get the bad news: your agent tells you they accepted an offer from an out of town cash buyer who out-bid everyone.

Disappointed, your agent tries to encourage you to stay motivated and keep looking. Things get worse. It happens over and over and over again. Who are these people that are paying cash—and are willing to pay a lot more than everyone else? These people are cash buyers, and, like it or not, you have to compete with them. But there is a winning strategy to use against them. We effectively compete with them, and more often than not, we win. But first, a little context to the current real estate market.

Market Context

The housing market in Florida and Indiana is hot and is not showing any big signs of cooling off that much. If you’re buying a home here, you might find yourself competing with people from out of town who are cash buyers. Homebuyers that are moving here from states such as New York, Illinois, California, and Massachusetts are getting a lot more home for their dollar. Combined with higher rates, a lot of these buyers are choosing to pay cash for their home, giving them a big advantage over someone who is using home loan financing to purchase the property. 

In these competitive real estate markets, such as Florida and Indiana, cash offers are very appealing to sellers due to their simplicity and ability to close fast. It is common, and can be quite frustrating for someone using a financing to buy a home, to lose a bid to a cash buyer. There is less risk for the seller because the buyer already has the money in their bank account ready to go, and out of town cash buyers are usually willing to pay more than the asking price simply because of how much more home you get in these states compared to where they’re coming from, like New York, Illinois, California, and Massachusetts.

If you’re one of the homebuyers that’s lost out on the home of your dreams to a cash buyer, it sucks, we know. But stay in the game and be of good cheer! Bee has tips and strategies you can use to level the playing field and even compete with cash buyers. But first, you have to understand how the process works, what the mechanics are of how each transaction works, and how Bee can give you a competitive advantage over everyone else.

How The Cash Buyer Transaction Works

Cash buyers have all the money they need to buy with the home with in their bank account already. These tend to be Boomers who have enjoyed a great career, don’t want to finance a home with current market rates, are sailing through retirement with their home paid off, and are looking to live in a more tax friendly or personal liberty friendly state, such as Florida, Tennessee, Texas, or Indiana. It’s almost 100% common for the homes in these states cost a lot less than where they used to live, like New York or California.

2,500 sq ft home in New York might cost $750,000 when it only costs $350,000 in Florida.

Combined with lower taxes, no personal income tax, the homestead exemption, and no taxes on most retirement income, this is why people from New York are eager to pay more for a home in Florida. This has a blockbuster effect, driving up home prices with out of town buyers frequently putting in offers far above the initial asking price of the home. They simply out-bid other local buyers who are not willing to pay a premium for the same home.

Once their offer is accepted, two main things happen before closing:

  1. All property dues and taxes are verified.
  2. A title agency clears the title.

Many out of town buyers will put an offer on a home site unseen, meaning they haven’t even looked at the home in-person. Many others will not even request an appraisal or inspection, know they’re paying more than the asking price, and that the appraisal would come in lower. This type of buyer makes it very challenging to compete with.

Verifying Dues and Taxes
Time: Less than a week
This step doesn’t take a lot of time to complete. If an appraisal is completed, the appraiser does it. If not, there are a number of different ways to verify the info on the home with tax assessments and HOA or CDD statements, etc.

Clearing Title
Time: 1 - 2 weeks
This is the step that takes the longest to complete before closing can happen, and usually takes about 1 - 2 weeks, depending on the title company’s
bandwidth at the time the order is placed. But this is also where your biggest advantage comes from. Nobody is going to buy a home unless they know the title is free of any liens or encumbrances.

Cash buyers can usually close in as little as 10 days once these two things are done. This is their main advantage, being able to close fast, and your major problem: most lenders need about 30 days to close. But this is where a Florida mortgage broker that can close fast, like Bee Mortgage, can really level the playing field.

The Key To Closing Fast

If you want to compete with a cash buyer, you have to be able to close fast. You can’t do anything about a cash buyer who is willing to pay whatever it takes to buy the home, so you might be outbid on some houses; but not all of them.

Step 1: Pre-approval
Time: Minutes
Using the latest technology and processes, Bee Mortgage closes most of its loans fast. Our AI and blockchain powered mobile app allows a single borrower to get pre-approved in less than 8 & 1/2 minutes. This is 3x faster than Rocket Mortgage, the closest competitor in the mobile mortgage space, even though they have little automation and are dependent on call centers full of people to process customer data.

Loan Processing
Time: Days, not weeks like most lenders
By reimagining the underwriter-to-borrower communication and condition clearing process, customers have the ability to easily upload docs from their phone, wherever they are. Combined with fast underwriting turn times, Bee Mortgage can obtain clear-to-close in days, not weeks, and can close 16 days after contract signing.

  

By being able to close almost as fast as a cash buyer, this gives Bee Mortgage customers a major advantage as sellers would often prefer to sell to a local couple as opposed to someone from out of town. This keeping it in the community strategy is already proven to work as Bee’s last customer beat out a cash buyer bidding the same amount of money for the home.

   

What To Expect When Expecting To Buy A Home

Expect the unexpected when shopping for a home. There are a number of things that can happen during the bidding process, negotiating seller comps, and the home inspection.

The Bidding Process
Work with an expert real estate agent. They represent you, negotiate on your behalf, and are paid by the seller, not you. Homebuyers who work with agents statistically get better deals than those who don’t. A good real estate agent will help you structure your offer in a way that makes it more appealing when there’s multiple offers on the home. There’s different things to consider, such as closing timelines, seller comps, and, most importantly, how high your offer should go. After all, you don’t want to over pay for the biggest purchase of your life, especially with rates higher than usual.

Negotiating Seller Comps
Seller comps are money the seller gives you to cover closing costs or for things like the lender’s title insurance. The small things add up, and, if you’re cash conscience, this can help you close with less money out-of-pocket. In most cases, the seller can give you up to about 3% of the sales price to cover closing costs.

$300,000 Home sales price
$9,000 seller comps to cover closing costs

The Home Inspection
Don’t ever buy a home without getting it inspected. Cash buyers don’t even do this, and most always get a 4-point inspection done. While they might forgo the appraisal because they’re willing to pay more than the asking price, the inspection is a must. After all, no one wants to be stuck with a home that has a major problem.

A 4-point inspection looks at:

The Roof: the age, condition, and roof type (shingles, tile, rolled, modified bitumen, steel, stone coated steel, etc.) are the important considerations, along with any missing shingles or leaks. A 4-point inspection does not test for wind or hail damage, however, which can be a slow killer causing leaks down the road. It’s highly recommended to have another roof inspection for wind and hail damage.

The Electrical System: this is the type of wiring in the home, (copper, aluminum, knob and tube, etc.), the electoral panel brand, and the age and condition of the electrical system.

The Heating & Cooling System: this is how air is circulated throughout the home (central heat and air, furnace, heat pump, ductless mini-splits, geothermal heat pumps, etc.), and the age and condition of the system are the primary considerations. Replacing a unit in Florida can cost around $10,000.

The Plumbing System: this is the type of supply and drainage lines for water (copper, CPVC, galvanized, Lead, polybutylene, etc.), and are check for age and condition. The hot water heater is also inspected.

Any number of things can go wrong with any of these steps, things that are totally outside of your control. However, good due diligence and expert advice from your agent will ensure you don’t by a lemon of a home and regret it for the rest of your life

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