With low inventory in many parts of the country, we’re still seeing multiple offer situations frequently. While that’s great news for sellers, it can be tough for buyers, especially the average buyer who’s financing their purchase. How can they compete with an all-cash offer? Does a cash offer always win?
The answer is no. Your financed buyers still have a chance! You just have to use the right strategies to ensure your clients come out on top. Discover our top 13 strategies to compete with cash offers and win the bidding war for your buyers.
1. Offer more money
For many sellers, their net proceeds are the most important factor in selecting an offer. They care more about how much money they’ll make when they close than how the buyer is paying for the house. So, the best way to compete with cash offers is to simply increase your buyer’s offer as much as they’re able and willing to.
2. Use an escalation clause
To help prevent your buyers from overpaying unnecessarily, consider using an escalation clause. This is a line in your contract that says: The buyer will pay X amount (I’ve seen anywhere from $1,000 to $10,000, depending on the price point of the house) more than the highest offer, not to exceed X (the buyer’s maximum they wish to offer), with proof of other offer. Have your broker or attorney help you with the exact language, but that’s the gist.
The theory behind this is to protect the buyers while giving them a chance to outbid a higher offer, without knowing what the other offers are. If you know one of the other offers is cash, I’d recommend increasing the escalation amount to make your buyer’s financed offer more attractive to the seller.
Here’s how to determine your buyer’s max: Ask them, “If another buyer paid $501,000 for this house listed for $500,000, how would you feel?” If they would be upset, go higher. Would they be upset if someone else paid $525k? $550k? $600k? Keep going up until they get to a point where they say, “No, I wouldn’t be upset – there’s no way I’d pay that much.” Ok, great, then go backwards and find the sweet spot.
PRO TIP
One last note on escalation clauses: Some listing agents don’t like them or don’t understand them. As part of your due diligence, have conversations with the listing agent before submitting an offer and ask how they feel about it. At the end of the day, their feelings don’t matter; they need to present all offers regardless, but it’s good to know where they stand.
3. Have the lender call the listing agent
Most buyer’s agents I know are already in the habit of doing this, but if you’re not, make it part of your process for every offer, even offers that are not competitive. When competing with cash offers, though, this step becomes crucial.
A phone call from the lender provides a sense of easy communication and proaction that listing agents and sellers will appreciate. If the lender is one you’ve worked with before, be sure to inform the listing agent about that relationship and reassure them that this mortgage lender is reputable and unlikely to have any issues. That will make the agent and seller more comfortable accepting a financed offer.
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4. Build rapport from day one
From the very first interaction of scheduling the showing to the time you’re writing the offer for your buyers, building rapport with the listing agent is key, especially if it’s an agent you haven’t worked with before. Practice and showcase ease, communication and friendliness – these all influence a person’s perception of you.
If it seems easy to work with you, the listing agent is more likely to talk up your offer to the seller, and the better the odds are that your client may win against a cash offer. Of course, there are many facets to an offer that sellers will consider, and the agent-to-agent rapport is one of them, for better or worse.
5. Call the listing agent before writing the offer
How will you know if you need to compete with a cash offer? Pick up the phone and call the listing agent. This is one of those instances where I strongly advise calling instead of texting. Hearing their tone of voice and conveying your tone will give you a better sense of the situation and allow you to continue building rapport with the listing agent.
A few questions you’ll want to ask are:
- “How many offers do you have in hand, and how many more are you expecting?”
- “What’s most important to the sellers?”
- “When would the sellers like to close?”
- “Is there anything besides price that would make our offer the most attractive to the sellers?”
Use this intel to strategically write your offer and compete with cash offers on the table.
6. Waive the home inspection contingency
I would never actually recommend this strategy as a buyer’s agent; however, there are some situations where a buyer will insist on waiving their inspection, and it makes sense for them to do so. For example, if the property is newer construction, a condo and the buyer is handy or has construction experience themselves, they might feel comfortable waiving their inspection.
Be very careful here, though. As agents, it’s our job to educate our clients about the dangers of not doing a home inspection. Should a buyer opt for this after weighing the risks, that’s their choice.
The fact is, though, that this is one strategy for competing with cash offers, as many cash buyers will waive their inspection. Check with your broker for specifics on this; they may have a waiver the buyer needs to sign to release you and your broker of liability.
7. Do a pre-inspection
This may or may not be popular in your market, but here in the Boston area, we see this fairly often. A buyer will bring in an inspector to conduct a pre-inspection, a condensed version of a home inspection that focuses only on the major systems and typically takes about an hour or so. This typically happens on a Sunday or Monday prior to the offer deadline.
The purpose behind it is to make the buyers feel comfortable waiving their home inspection contingency. They’re satisfied that the major systems of the house are functioning, which allows them to make their offer cleaner by waiving the inspection contingency. This makes them more competitive with cash offers.
8. Use a high inspection threshold or an inspection for informational purposes only
If your buyer doesn’t want to waive their inspection or do a pre-inspection (totally understandable), another strategy is to do the inspection for informational purposes only or to include a high threshold. Let’s break both of these down:
- For info only: This is when the buyer conducts a full home inspection to gain knowledge of the property. It lets the seller and their agent know that your buyers are not interested in “nickel and dime-ing” after the inspection.
- Using a high threshold: This is when you write into the buyer offer letter that the buyers will not negotiate for any single inspection item that costs less than X ($5k, $10k, etc.) to repair. This will show the seller that the buyer is only retaining the right to renegotiate if something major comes up.
This is a great way to compete with cash offers when buying a house because it still protects the buyer in the event something expensive is found while allowing the seller to feel comfortable accepting a financed offer.
9. Appraisal gap coverage
One of the main concerns about accepting a financed offer is the appraisal. If a buyer offers a price well above asking, that’s great, but if it doesn’t appraise, there will be issues. So, to be more competitive, offer to cover any appraisal gap. This lets the seller know that your buyer will cover any difference between the appraised value and the agreed sale price.
Discuss with your buyer about whether they want to put a cap on the appraisal gap coverage. You don’t want the buyers to be stuck going out of pocket an extra $50k if they don’t have that cash available. Be sure they have the additional funds before putting it in the offer!
Pro Tip
Talk to the lender about appraisal gap insurance, a very cool product offered by most mortgage lenders that costs pennies on the dollar, should an appraisal issue arise. This is a great option for every buyer using a mortgage, especially those who don’t have a ton of extra cash in the bank.
10. Let the sellers choose the dates
Another way to compete with cash offers is to ask the listing agent when the seller prefers to close and even offer to let them choose the closing dates. As long as the buyers are flexible, this strategy can go a long way.
Find out from the lender the soonest date they could close, and let the listing agent know that. “We can close as fast as (date) if the sellers want! What date works best for them?” Flexibility will definitely make your buyer’s offer stronger.
11. Offer a rent-back
If the sellers want more time and the buyers are ok with it, offer to do a rent-back, also known as a leaseback. This is when the sale closes, but the sellers don’t move out right away. The buyers become the owners of the property, and the sellers become their tenants.
We see this a lot when sellers are building new construction and need some flexibility for construction delays, which happen more often than people think. This is another reason why calling the listing agent before writing the offer and asking the right questions is so crucial. You can learn valuable intel like whether the sellers need extra time after closing; this will make your offers much stronger and allow you to compete with cash offers.
12. Get creative with additional incentives
Think outside the box. Additional incentives to the seller will make your buyer’s offer stand out from the crowd and have a better chance of beating out a cash offer. Here are a few ideas of creative things the buyers could offer:
- Pay the seller’s moving costs
- Pay the seller’s closing costs
- Buy the seller pizza for a year in their new town
- Offer the sellers a cleaning service
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13. Exclude your compensation from the offer
This is a big one. If your buyers are in a financial position to pay your brokerage fee out of pocket, that means the net offer price is higher and more desirable to the seller. This strategy to compete with cash offers is a hidden gem, as many agents (your competition) still default to including compensation as a term of the offer.
Of course, this only works if your buyers are willing and able to pay your brokerage directly, but it’s worth mentioning to them as a way to strengthen their offer without further increasing the sale price.
Frequently asked questions: Complete with cash offers
Should buyers waive their mortgage contingency?
There are lenders who will bring the file through underwriting and can issue a commitment letter much sooner than a week prior to closing. So in theory, a buyer could waive their mortgage contingency, and it does happen. That said, I’d be extremely cautious about this. Advise the buyer about all the risks involved and let them make the final decision (in writing!).
How important is the lender?
Extremely. When I’m the listing agent, I would much rather see a pre-approval letter from a local lender or a local rep of a national company than a form letter spit out by a website. When I call the lender to talk with them about the buyer’s qualifications, I can get a sense of how helpful they’ll be and how strong the buyer is. So on the buyer side, definitely encourage your clients to work with someone who’s easy to reach, proactive, and local.
Should we include a love letter?
You’ll hear different schools of thought on this. My opinion is no. What you can do instead is talk up your buyer to the listing agent when you’re on the phone with them. Tell them how well qualified they are and how excited they’d be to get the house, but don’t get into any specifics that could potentially be a fair housing violation.
The full picture
The best strategies to compete with cash offers can be summarized as increasing the offer price, removing contingencies and being as flexible as possible. If you’re working in a strong seller’s market and homes are selling with multiple offers, educate your buyers early on. I’d even show them this article around the time you first meet with them to talk about the process. This way, they’re prepared to be competitive and strategic, with you as their expert guide.
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About Ashley Harwood
Ashley Harwood began her real estate career in 2013 and built a six-figure business as a solo agent before launching Move Over Extroverts in 2018. She developed training materials, classes, and coaching programs for her fellow introverts. Beginning in 2020, Ashley served as Director of Agent Growth for three Keller Williams offices in the Boston metro area. She’s now the Lead Listing agent for the Fleet Homes team in Massachusetts and a regular contributor to Vetted by HousingWire. She created The Quiet Success curriculum and has taught thousands of real estate agents nationwide. She has also been a guest speaker at top industry events and has been named a leading real estate coach by prominent industry publications.
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