I Want To Make a Low Offer Because I’m An All Cash Offer
I hear this from time to time. And I’m going to do what my clients instruct me to do. I have definitely made the all cash low ball offer or two.
But there can be unforeseen consequences, lost opportunities, even stress at discovering this is not really a great strategy for getting the home you love.
When $ Offers Backfire
Early in my career, I had a client instruct me to make an extreme cash low ball offer. This buyer told me he loved the the home. And was willing to come up in price.
But the Seller was so dejected by the offer. And coupled with (unbeknownst to us, had lost their replacement home contract that very same weekend). And thus, rather than negotiate a terrible offer, they withdrew their home and elected not to sell at all. My buyer was devastated.
Yeah, that’s an extreme outcome. But more common than you might imagine.
All Cash Offers Are Prevelant
Nationwide, cash buyers generally account for one in four transactions. This includes the occasional all cash low ball offer.
Locally, here in Colorado the past few years, our percentage has been closer to one in three. This is a hot real estate marketplace.
Its Not To Say Cash Isn’t King!
Cash buyers do offer advantages over a comparable mortgage buyer. There is no appraisal requirement. The loan objection deadline is eliminated. The Contract to Buy and Sell property moves much faster.
In 2017, I sold a listing in less than seven business days to an all cash buyer!
Agents Figure Out Buyers Fast
Lately, Listing Agents have become wary of cash buyers.
Why? It’s not even a cash low ball offer. It can be a full price cash offer to get under contract quickly. But then a brutal inspection phase, geared to beat up the Seller on the inspection deadline and effectively renegotiate the sale.
Agents need to also read the fine print. Some cash buyers sneak language in requiring sellers to pick up pricey surveys. Mortgage backed offers frequently tend to be more desirable – less sneakiness involved.
Mortgage Buyers Frequently Beat The Cash Low Ball Offer
During the height of the Seller’s Market, Buyers routinely employed negotiation tactics to successfully counter cash buyers.
Home Buyers agreed to waive appraisals. This would be accomplished by agreeing to bring additional funds to closing if an appraisal came in low.
Next buyers scratched the loan approval. For some clients, they already knew they would be approved. So, giving up the deadline made no difference.
Other loan financed clients even made cash offers with the right to change financing. So, these mortgaged buyers looked and sounded just like cash clients. It really narrows the gulf between offers.
The All Cash Low Ball Offer Strategy
I’ve seen this both from buyer clients and unsolicited offers to my Sellers. Recently, I had an agent email me a letter of intent. His buyer was interested in submitting a ridiculously low cash bid. I emailed back and thanked him for the interest.
It wasn’t a real offer. Actual offers must be in writing (generally on the Colorado form), with earnest money and signed. This was just a form email trying to steal a house.
I have also had clients inquire about making low low cash low ball offers. “Sure,” I say, we can do that. But what is the strategy you want to follow? Consider this. Assume you view 3 units (one you love, one is okay, one you dislike). And all are competitively priced.
Strategy # 1: We write up, sign and submit low offers on one after another of all three places. It’s not about the house. It’s about the price. Success is moving the cash low ball offer to acceptance.
Strategy # 2: Alternatively, you may say, I only want to bid on the one I love. In that scenario, I think you will find your cash is just a financing option.
You might get a home for 97, 96% of list price. But I would be surprised that someone with a good condo, well priced, would take a big reduction just for cash.
If you come in really low, you are apt to see your offer get rejected. Meanwhile, you are still waiting for only the best homes to come along – like your competition.
As the year moves along, more competition comes with it. You might find yourself with more and more competition, the value of homes you like climbing, you stuck on the sidelines.
Sometimes, for a client, I will do an analysis of a community or HOA or geographic location (within say, a 1/4 mile circumference), for whats’s sold for in the prior 30 or 90 days. Then you can see the average List to Sold price ratio.
Clients are usually surprised to see that cash doesn’t command a big discount. And why would it? Some smaller merchants will discount for all cash by one or two percent. But in general, couches and cars refrigerators cost just as much with a Visa card as cash.
Boulder Real Estate Market Change
Of course, there is always an exception to the rule. Should the housing market be in a moment of change. From the Sellers Market of the past few years to neutral or a Buyer’s market, well, that all cash low ball offer might suddenly have more purchasing power!
But so far, there is no indication of a major shift. I’m Bob Gordon, Boulder Realtor. I blog on real estate trends, the housing market around Boulder and Denver and more. I’ve been writing posts since 2012. Thank you for checking out my blog.