Win in a Seller's Market without Loads of Cash

Hey everyone.  As you know, we’re in the midst of an extremely strong seller’s market here in the Bay Area which shows no signs of slowing down.  That means that things can be extremely tough if you don’t have a lot of cash available.  While having cash on hand is a huge advantage, buyers who don’t have huge cash reserves can still be successful in this market.  In fact, I’ve recently helped two buyers get instant equity in their new homes despite having less than 20% to put down.  I’ll explain how.

Number one – understand the seller’s thought process.  Knowing what the seller wants makes it easier for you to give it to them, which is the key to making a deal.  All sellers are different and have different motivations, but, generally speaking, they want the best price for their home in the least amount of time, and they want to avoid any possibility of the deal falling through.  Some sellers may have other motivations which can be used to your advantage if you find them.  That includes if they need a rent-back to find another house or if they need to close quickly, so they can get into contract on a replacement property.  A good Realtor can help you learn more about the seller’s motivation and help you use that to craft a strong offer. 

The reason why cash is generally king is because it minimizes the number of moving parts and limits chances for the deal to fall through, but strong offers with a loan that address the seller’s needs can win over lesser cash offers.

Number two – know your own limitations.  Ultimately, the seller will accept the highest offer that best fits their needs and has the highest likelihood of performing.  If you’re in a limited cash position, what the home will appraise for is of critical importance.  It keeps your offer tethered to the market value of the home and keeps you from overbidding.  The less cash you have, the closer to the appraised value you need to be.  Why?  Because your lender will only loan you up to the value of the appraisal.  If you don’t have any way to make up the difference, you won’t be able to perform on the contract.  Even if you’re willing to take the risk, the sellers and a good agent will understand your financial position and the risks involved, by accepting your offer.  The solution?  Get comparative market analyses for every property you’re considering writing an offer on and check with your agent about the likelihood of your offer to appraise.  In appreciating markets, the appraised values often lag the market values and present a risk.  Avoid making offers on properties where there is a risk of a low appraisal.

Number three – get as much of your loan underwritten in advance as possible.  You want to be able to close quickly and you need to be confident that you will be able to get the loan before writing the offer.

Number four – write non-contingent offers.  Contingencies give you as the buyer a chance to back out of the contract and have your deposit refunded if certain contingencies occur.  The option for you to cancel is generally not palatable to the seller because it could cause the home to go back on the market, so offers with contingencies are generally very weak in a seller’s market.  That means you should do enough diligence on the property to be comfortable that there will be no unwelcome surprises.  Please note that this only applies to homes where the seller has provided detailed inspection reports with the disclosures.  If no reports are provided, you should strongly consider passing on that home as there’s generally a reason why those reports weren’t provided.

Number five – focus on properties that have been on the market for an above average period of time.  While these aren’t as sexy as the new homes on the market, that means there is less competition.  The home may have been priced incorrectly, or there may have been some sort of an issue.  Either way, these homes represent an opportunity because the lack of competition gives the buyer an advantage.  You could negotiate price on these homes, or add contingencies which could leave you with a better deal and much more peace of mind than competing against multiple offers.

Number six – identify properties represented by out of area agents.  Out of area agents may not be as well in tune with the local market, or might make mistakes entering the home into the MLS which limits its visibility.  These out of area agents could be part-time agents who are related to the seller or representing the seller on a buy side transaction somewhere else.  They could also be charging a below market commission and providing a commensurate level of service. Identifying these homes, especially early, right when they come on the market, could result in a great deal.

Number seven – use your agent to find off-market opportunities.  There are many sellers who want to sell without the hassle of prepping the home for market and having their lives turned inside-out for showings and who are willing to sacrifice some of the potential value of their home for the convenience.  If they are smart, they will work with an agent to effect an off-market sale rather than seeking out a well below-market cash offer.  Good agents know of off-market possibilities where buyers can avoid much of the competition of the open market.

Finally, when it comes to making offers in a multiple offer situation, you want to be at the highest price with the best chance of a smooth closing.  Leading with your highest and best offer is a good strategy if you and your realtor expect the seller to treat the process like a blind auction, and you don’t want to miss out.  Thorough seller’s agents will go through the offers and try to generate competition amongst the multiple offers or present multiple counter-offers, so that should be taken into account when writing the offer.  The goal of the first offer, at a minimum, is to be in the conversation for any counter offers.

If you enjoyed watching the video above, please like, comment or subscribe.  If you live in the Bay Area and would like my help buying or selling a house, please click on the link in the description.  Thanks, and best of luck in your home search!