7 Ways Buyers Can Compete with Investors

If you are in the market to buy a house and are worried if you can go toe-to-toe with real estate investors, worry no longer; there are multiple tools to gain to competitive edge. Investors main goal is to get a house for a great deal by offering all-cash offers, while submitting a lowball bid. If you can muster the funds to offer a realistic offer, be preapproved, and show this is your dream house, you can surely stand against them and win.

Offer strong

Buying a house more-than-not turns into a bidding war, and the simplest way to win, is to offer more money.  Cash buyers always want to offer less because they have cash. If you are competing with a cash offer, you will have to offer more than the competition, maybe even above the asking price.  

Don’t skimp on earnest money

The word “earnest” might seem a bit dated, but the concept it represents of “putting your money where your mouth is” will never grow old. This money is sent into your escrow account shortly after signing the purchase agreement, and will tell the seller you are serious. You stand apart because investors don’t often put down their earnest money, because their money is spread across multiple deals and they want to keep as much as they can on hand.  Usually this earnest money will cost you 1% of the purchase price, but it’s not uncommon for buyers to offer 3%.

Get a preapproval, or a pre-underwriting letter

Being preapproved for a loan is essential if you are competing with an all-cash buyer. Your lender will write you a preapproval letter stating you are qualified to borrow and certain amount of money. You can take it up a step by presenting a personalized letter from your mortgage adviser stating what great people you are.

To speed it up even further, get yourself a pre-underwriting letter, which is a more thorough vetting process than preapproval. Preapprovals check bank statements, income checks, proof of down payment funds, and credit history, underwriting reviews all those plus the required documents needed to get the deal done. Essentially, with a pre-underwriting approval, you are held in the same light as all-cash buyers according to the sellers. This allows closing day to come with haste, and is very attractive to sellers.

Personalize your offer

Personalizing your offer won’t lessen your chances of getting your dream home. This is a free card to play, so try finding out the best way to touch the seller’s emotions. Sellers love their homes, and have cherished memories in it, so do your best to let the seller know your family will continue the good memories and love in this house. Just writing a heart-felt letter to them should do the trick.

Waive the financing-contingency clause

This clause exempts the buyer from the commitment if they don’t get the loan, or if the appraisal comes in below the offer. Waiving this clause will grab the seller’s attention, no doubt. Getting your preapproval or pre-underwriting will surely add confidence to your financing terms, and transfer all the risk to the appraisal. It’s not uncommon to lose money on this, so keep that in mind.

Remove the inspection contingency

Cash investors usually buy properties as they are. If they’re planning to buy a dumpy home that needs remodeling, they’ve already budgeted for the repairs. If you remove the inspection, you are signaling to the seller that the accepted offer from the buyer will go to escrow and close quicker. In order to compete with that, ask your agent how they can shorten the inspection period. A good agent should have an inspector on hand. Do not waive the inspection completely though, it could save your butt in the long run.

Be flexible with the possession date

Investors typically want their properties ASAP, but you have the option to be flexible. Sellers are hesitant with the whole process because they have to know where the cash is coming from, and where to find a replacement to live in the meantime. Let them know they have time to accommodate their needs before yours are met. 

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