How to Set Your Cash Offer Price
Many cash home buyers and inexperienced real estate investors think that they can make low-ball offers simply because they are paying cash. A cash sale definitely streamlines the closing process by removing the need for a mortgage loan. A quicker, less-complicated transaction is certainly appealing to some home sellers. However, there are many other factors you need to consider as a cash home buyer when setting your cash offer price.
Just because you are offering cash doesn’t necessarily mean the seller is dying to accept your offer—even if they are in a state of financial distress and need to move quickly. They are still going to review any offers they receive and determine what seems the best before committing to a decision. They may get offers that depend on mortgage loan and have other contingencies, but the price is much higher than what you are willing to offer.
Let’s face it. The offer price will always be the first thing that any home seller will look at. They aren’t always thinking through every detail of each offer and weighing the pros and cons. As a buyer, you know the advantages of a cash sale and you also know it should provide you a little more leverage in negotiating. Do not assume the seller knows this. They see one price against another and are naturally drawn toward the higher price.
So, how do you make your cash offer stand out and seem as appealing as possible? It starts by developing your own process for setting the ideal cash offer price. Here are some key factors to consider:
It really helps to understand the seller’s specific situation. Why are they selling and how soon would they like to sell? Perhaps they are behind on mortgage or property tax payments, or facing some other form of financial distress. Maybe they are going through a divorce or relocating for a job and are looking to sell as soon as possible. They might have inherited a property that they don’t have the time or resources to deal with. Or, they may be a regular home seller who has the time to wait for the best possible offer.
Learn more about the seller and why they are selling. This is the first step in setting a cash offer price that is both feasible for you and acceptable for them because of their specific selling situation.
Of course, you need to study the real estate market. Know what other comparable homes in the neighborhood are selling for. How long are properties sitting on the market? Are there any price reduction trends worth noting? If you are looking at buying a house in a location where houses sell fast and for top dollar—regardless of condition—then you know you can’t come in with a low-ball offer. If the trends work in your favor, then you may be able to offer a lower cash price.
Before buying any house for cash, especially as a real estate investor, you need to create an investment plan and budget. Understand how much you are able to spend on buying the house, as well as how much it will take to fix up the house before you can resell it or rent it out for profit. Each real estate investment is unique, so you have to run analytics and projections before jumping in and making a cash offer. Some houses may not be worth the trouble. Others may be excellent opportunities. A house that needs a little less work may enable you to bump up your cash offer a bit, while one that needs a lot of work may reduce your desire to offer too much.
As we said, most home sellers are going to look at the price first before considering any other details of the offer. You are likely offering less as a cash deal compared to another potential buyer who is offering more through a mortgage loan. You have to find ways to make your cash offer stand out and look more attractive. This can happen through educating the seller and making sure they understand why your lower cash offer with fewer complications is actually a better deal for them than one that gives them a higher price, but presents a much more complex transaction.
As a cash home buyer or real estate investor, you have some leverage. You may not be offering as much money as someone else, but your offer may truly be the best that seller is going to get and you need to let them know why. Meanwhile, you need to do the necessary research and planning to set the cash offer price in a range that benefits you. You don’t want to overpay, but you don’t want to low-ball the seller so much that they won’t even give you the time of day.
If you are looking to buy a house (or houses) for cash, consider joining the PropertyLark home buying network. We give you exclusive access to great off-market deals and we have custom analytics tools to help you review properties and create better cash offers. To see if you qualify, visit our home buyer portal.