It’s a real estate experience that’s becoming far too common: A prospective home buyer at long last lands on the house of their dreams. They make an offer—a good one that’s well over the asking price—only to have the rug pulled out by an all-cash buyer. But how can a traditional home buyer compete? Clare Trapasso, executive news editor at Realtor.com, says that while yes, this home buying experience is daunting, home buyers shouldn’t throw in the towel just yet.
All Cash Offers Are the New Trend in Home Buying—But Can the Average Home Buyer Compete?
1. What Does It Mean to Buy a House with All Cash?
No, you’re not rolling up to a closing with a suitcase full of money, Trapasso explains. All-cash offers still go through banks and official financial channels. “Most cash buyers are investors, such as home flippers and landlords or the wealthy, who can afford to purchase a property without a mortgage loan or other financing,” Trapasso says.
Other examples of all-cash buyers: Someone who is selling a home and can use the profits to purchase another one or someone who received an inheritance from a family member or was able to cash out their stock options. “Sellers often prefer all-cash offers because of the perception that these are ‘safer’ and the deal is less likely to fall apart,” Trapasso adds. “That said, that isn’t always the norm as all-cash buyers may offer lower amounts or pull out of the deal last-minute.” Bottom line, per Trapasso, the traditional home buyer still has ways to compete.
2. How Can a Traditional Home Buyer (aka One with a Mortgage) Stand Out?
Yes, a cash-offer is incredibly desirable to a seller—but guaranteeing a quick closing, offering a higher down payment or waiving contingencies are all ways for a traditional home buyer (meaning a borrower) to compete. “Sometimes just putting in the highest bid is enough,” Trapasso says. “Buyers should strive to make it as easy as possible for sellers to choose their offers.”
A lot of times this comes down to doing your research—for example, choosing a lender that can offer a quick close can put you on equal footing with an all-cash buyer. Same goes for the down payment. Trapasso says that stand-out offers that are at least 20 percent or higher can bring a traditional home buyer’s offer to the top of the pile, even when faced with those that can pay in full.
As for waiving your home inspection, this can be helpful when it comes to clinching the deal as it means the seller won’t be on the hook to pay for (or credit the buyer) in the face of significant repairs. That said, it’s a choice you want to make sure you’re comfortable with. “I don’t recommend this as there can be major and extremely expensive problems—things like a cracked foundation or plumbing, roofing or electrical issues—in a home that aren’t visible to the naked eye and can cost tens of thousands of dollars to fix,” Trapasso explains. As a work-around, Trapasso suggests opting for a structural and engineering inspection instead, which signals to the seller that you are only looking at the big things in a home and won’t nitpick over small repairs.
Traditional home buyers can also waive appraisal contingencies. “This means that if a buyer offers $550,000 for a home, but the home only appraises for $500,000, you’re on the hook for coming up with that extra $50,000 or you will lose your earnest money deposit,” Trapasso says. Again, before you waive this right—which gives you the option to walk away from a sale or negotiate with the seller—you want to be sure your real estate agent has thoroughly reviewed the comps (i.e. how much comparable homes are selling for within the last three months in the area). “If you are comfortable parting with that much extra money should the appraisal come in low, then go forth,” Trapasso says.
One final way to sweeten the deal next to a cash buyer: Let the seller know you’re not in a rush to move in. “Buyers who have flexibility with their move-in date can offer a seller the opportunity to stay in their home after it closes or rent it at favorable terms.”
3. Are There Workarounds to Come Up with the Cash?
There are a couple of ways to get creative, says Trapasso, but they’re risky and need to be thought through. For example, a buyer could take money out of their 401(k) to fund their home purchase, but Trapasso doesn’t recommend this. “In some cases, buyers could be faced with a 10 percent early withdrawal penalty if they are under the age of 59.5 years old, depending on how they take out the money,” she says. “They’re also potentially losing money they will likely need in retirement or earning returns on it.”
Another option: Buyers can consider a company that allows them to make an all-cash offer on a home. “These companies exist, but buyers may wind up paying more over the life of a loan than they would have with a traditional mortgage,” Trapasso says.
A Final Thought on the All-Cash Offer Real Estate Trend
Don’t forget, having a mortgage can be a savvy financial move since there are tax benefits, but you can also leverage the cash you hold onto by investing it. (Read how the celebs do it here.) In addition to that, all-cash offers have declined ever-so-slightly since last year, according to the National Association of Realtors, who sites that 26 percent of all home sales in June 2022 were paid for in cash compared to 25 percent in June 2023. Other challenges like low inventory and higher home prices remain, which means it’s still not an easy market for anyone, but relying on some of the workarounds above can help your offer stand out.