Buyers in the Denver real estate market are acutely aware of the advantage of bringing all cash to the table when purchasing a property, as opposed to obtaining funding through a loan. In the buying pecking order, cash is king and loans with down payment assistance are the least desired form of funding.
The Advantages of Cash
The obvious advantage of buying real estate with cash is the absence of a loan and all of the potential pitfalls that come with it. A mortgage loan typically takes 30 to 45 days to process from application to closing. During this time there are a variety of opportunities for the deal to come apart. Changes in credit scores, larger debt to income ratios and employment status can all bring the loan process to a grinding halt.
Cash on the other hand, is cash. There is no seasoning requirement, where the money needs to be tracked to its original source. Without a loan, the speed of the transaction increases greatly, and in Colorado the transaction can happen as fast as the title work can be completed.
For the home buyer using a loan to make the purchase in a competitive seller’s market, a competing offer for the same property in cash is usually a deal breaker. Sellers are far more likely to take a cash offer for the increased speed of the transaction, and confidence the deal will reach the closing table successfully.
The Downside of Cash
If cash is king, how can there be a down side? The answer is time. With a loan, the process takes time, and there are distinct opportunities for the buyer to stop the transaction and have their earnest money returned. The loan objection is a final point where the purchase can be terminated. In a cash deal, there is no loan objection, and no way to stop the process just prior to closing without giving up the buyer’s earnest money.
The loan process provides more time for the buyer to inspect the home, visit the property and be sure they get to the closing table without buyer’s remorse.
A cash buyer is also more likely to over pay for their home. With a loan, the lender will require an appraisal to assure the amount of money they are lending is commensurate to the value of the property being purchased, which is held by the lender as collateral. A cash buyer, especially one with a surplus of cash, is often willing to pay more to beat all other competing offers. The winning bid, however, can come at a price well beyond the true value of the home.
Competing Against Cash
Most buyers don’t have four hundred thousand dollars or more sitting around to buy their next home with cash, so they are left competing against cash buyers with a loan. Is it possible to beat cash? Even with it’s inherent advantages, a loan can take the winning bid. If you are coming with a loan and competing against cash, here are a few tips:
Come with a pre-approved loan and a loan officer that will speak to the listing agent on your behalf. The further you are in the loan process, the more likely your loan will close successfully and be attractive to the seller.
Be flexible with your time frame. Cash offers typically want to close very quickly. Give the seller the ability to have more time to move, and be willing to work within their terms.
Write a “love letter”. Make your case to the seller that financial terms aside, you are the person who would be the best choice to live in their home and neighborhood.
Tell the seller you will limit the items requested to be corrected from the inspection to health and safety issues, but never waive the inspection altogether.
Purchasing with cash makes for a strong position and quick close, but can also lead to over-paying for a property. Buyers who don’t have the luxury of deep pockets can still compete against cash offers. It takes good sales tactics on behalf of the buyer’s agent and a seller that isn’t fixated on the financial aspects of the sale.
Jim Brown is a Realtor® and Success Leader at Private Label Realty in Denver, Colorado. He advises, assists and mentors agents at all levels to help them succeed and grow their real estate business. He routinely performs his own stunts and writes crazy amounts of content. www.JimBrown.me