How To Compete Against Cash Investors In The Real Estate Market?

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
As we have started to see increases in home values in certain areas across the United States I’ve noticed that it’s been more difficult for a borrower with financing to obtain an accepted offer vs a cash investor. Cash Investors have been dominating the marketplace and in some circumstances even offer significantly higher than the asking price altering the market in certain areas. A report from Goldman Sachs estimates that the number and dollar volume of homes purchased with all cash has risen to more than 50% nationwide.

This thread is to help New Homebuyers educate themselves with the obstacles of competing with a cash investor and how to overcome them. This requires a team effort where all parties involved (You & your family, Realtor & Loan Officer) are skilled and know what to look out for.

Some of the most common areas this is starting to occur is Florida, South Carolina & Georgia. We have already seen a large increase in value here in California but from my experience we tend to start the nationwide trend.

First and foremost would be to get Pre-Approved for a new home loan and save as much as you can for a down payment. The more you put down and the program that you’re qualified for can make a difference, especially if you’re willing to offer more than the asking price. Sometimes the Pre-Approval will be as good as cash and the seller may ask for verification of funds needed to close the transaction. It’s best to speak with a qualified loan officer that understands all programs, guidelines and which one would best suit you and your family. The Pre-Approval typically will show the details of your new home loan, your credit score and assets.

In addition to the Pre-Approval it’s smart to write a cover letter explaining your intention with the property. Remember these Sellers do have emotions, just like you. Sometimes the seller is selling the home that they grew up in or have lived there a long time. They would rather sell the home to a family that is planning on living there vs an investor who is buying it for cash and renting it out or flipping it.

Most loan officers like myself will make themselves available if a seller wants to speak with them in regards to the borrowers qualifications and what they have done so far to ensure the borrower is eligible. Anything to make yourself stand out from the crowd can make a difference in obtaining an accepted offer or not.
 

TomEason

LoanSafe Guide
As we have started to see increases in home values in certain areas across the United States I’ve noticed that it’s been more difficult for a borrower with financing to obtain an accepted offer vs a cash investor. Cash Investors have been dominating the marketplace and in some circumstances even offer significantly higher than the asking price altering the market in certain areas. A report from Goldman Sachs estimates that the number and dollar volume of homes purchased with all cash has risen to more than 50% nationwide.

This thread is to help New Homebuyers educate themselves with the obstacles of competing with a cash investor and how to overcome them. This requires a team effort where all parties involved (You & your family, Realtor & Loan Officer) are skilled and know what to look out for.

Some of the most common areas this is starting to occur is Florida, South Carolina & Georgia. We have already seen a large increase in value here in California but from my experience we tend to start the nationwide trend.

First and foremost would be to get Pre-Approved for a new home loan and save as much as you can for a down payment. The more you put down and the program that you’re qualified for can make a difference, especially if you’re willing to offer more than the asking price. Sometimes the Pre-Approval will be as good as cash and the seller may ask for verification of funds needed to close the transaction. It’s best to speak with a qualified loan officer that understands all programs, guidelines and which one would best suit you and your family. The Pre-Approval typically will show the details of your new home loan, your credit score and assets.

In addition to the Pre-Approval it’s smart to write a cover letter explaining your intention with the property. Remember these Sellers do have emotions, just like you. Sometimes the seller is selling the home that they grew up in or have lived there a long time. They would rather sell the home to a family that is planning on living there vs an investor who is buying it for cash and renting it out or flipping it.

Most loan officers like myself will make themselves available if a seller wants to speak with them in regards to the borrowers qualifications and what they have done so far to ensure the borrower is eligible. Anything to make yourself stand out from the crowd can make a difference in obtaining an accepted offer or not.
Erik, Thanks for posting this excellent advice!
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Thank you Harvey Jackson! I sincerely appreciate that. I'll be following up on this thread with more tactics that I've found to be successful when competing with cash buyers. I've seen many cases where Realtors (mainly selling agents) have had a horrible experience in the past with buyers falling out of escrow because of a hiccup in the loan process.

A couple weeks ago a Realtor had a deal fall out of escrow and the loan officer continued to tell this agent that there were "no problems" until the end of the close of escrow. I immediately reached out to the selling agent to inform them of what we have already done to assure a quick and smooth closing. This alleviated his stress and he thanked me continuously for calling him right away. This specific client had a lower credit score (589) and was going for the FHA Back to Work program, which is extremely difficult to qualify for. We had already done our homework upfront to make sure the borrower is pre-approved and jumped through every hurdle you can possibly imagine before issuing a pre-approval.

I then sent the Realtor the pre-approval and attached our guidelines for FHA which allows a FICO of 580+ to be financed. He immediately called me and said "Are you sure you can finance this, I've never seen someone with this low of a credit score obtain financing." I replied "That's why I attached our guidelines to the e-mail to show what our specific requirement is for this program."

Needless to say this ended in the borrower obtaining an accepted offer AND not only that we closed the loan in 9 business days! The borrower signed loan documents yesterday (Friday 5/30/2014) and received his keys for his new house. Communication and a team effort in the home buying process is crucial.

I'll reach out to the borrower and see if he's ok with explaining his experience here to share with others. If there's any questions relating this topic or a tactic someone has used that's been successful, please share it here.
 
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TomEason

LoanSafe Guide
Thank you Harvey Jackson! I sincerely appreciate that. I'll be following up on this thread with more tactics that I've found to be successful when competing with cash buyers. I've seen many cases where Realtors (mainly selling agents) have had a horrible experience in the past with buyers falling out of escrow because of a hiccup in the loan process.

A couple weeks ago a Realtor had a deal fall out of escrow and the loan officer continued to tell this agent that there were "no problems" until the end of the close of escrow. I immediately reached out to the selling agent to inform them of what we have already done to assure a quick and smooth closing. This alleviated his stress and he thanked me continuously for calling him right away. This specific client had a lower credit score (589) and was going for the FHA Back to Work program, which is extremely difficult to qualify for. We had already done our homework upfront to make sure the borrower is pre-approved and jumped through every hurdle you can possibly imagine before issuing a pre-approval.

I then sent the Realtor the pre-approval and attached our guidelines for FHA which allows a FICO of 580+ to be financed. He immediately called me and said "Are you sure you can finance this, I've never seen someone with this low of a credit score obtain financing." I replied "That's why I attached our guidelines to the e-mail to show what our specific requirement is for this program."

Needless to say this ended in the borrower obtaining an accepted offer AND not only that we closed the loan in 9 business days! The borrower signed loan documents yesterday (Friday 5/30/2014) and received his keys for his new house. Communication and a team effort in the home buying process is crucial.

I'll reach out to the borrower and see if he's ok with explaining his experience here to share with others. If there's any questions relating this topic or a tactic someone has used that's been successful, please share it here.
Hi Erik
Thanks for sharing that story!
 
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