Is cash really king? A case study…

Cash-Bonus-293x300So maybe you didn’t hear it here first.  And perhaps there is some trepidation as you read about how the market is picking up.  I get it.  Real estate has been hit hard the past several years.  But like a punch-drunk boxer taking a standing 8 count, the market is digging deep and finding its equilibrium. So here’s the thing…It’s back!  Like every cycle before, the housing market is cutting through and leading the economic recovery.

And if you think cash is king…think again.  In some markets nearly half of all transactions involve cash buyers, but that doesn’t really tell the whole story.  With the right agent in place you can find a great property and beat out those cash buyers.

The Right Agent

I read a blog recently that questioned the value of relationships between agents.  I’m here to tell you firsthand that it matters…A LOT!  Working with an agent who is not only well-connected, but also well-respected, can make the offer, negotiation, acceptance, and closing details go much smoother.  It’s like anything else really.  Why do we shop at certain stores?  Why do we take our cars to a certain mechanic?  In many cases it’s because of the relationships we have with the people there. You also must work with an agent who knows what you want…and knows the local market you are interested in better than anyone else.  In addition to knowing what’s available, and that’s not much these days, they need to know what’s under contract and if there are circumstances that may cause it to fall out.  Again, relationships and connections.

Case Study Part 1:  On St. Patrick’s Day we met with a client who expressed an interest in buying a property.  After a short discussion about their needs, I ran an MLS search and found only 4 homes that were active on the market and met their criteria.  Now, because we constantly monitor the market and talk with other agents, I knew there were 2 other homes under contract that also fit their needs.  I called the agents and guess what?  One of them just cancelled escrow and was going back on the market that evening.  I called the buyers, met them an hour later, and wrote the offer.

timing-is-everythingTiming is Everything

We’ve all heard this expression.  But you must understand that timing can be the key to beating out the cash offer.  Here’s the reality of cash offers.  They usually come from investors and what do investors want?  The best deal (lowest price) possible.  So all things being equal when it comes to price, the terms you offer, along with the timing, can make all the difference.  And it’s not just about taking the home in “as-is” condition.  A great strategy should include the best terms and timing important to the seller.

Case Study Part 2:  Back to our St. Patrick’s Day buyers.  Since I had a good relationship with the listing agent I was able to ask some questions about why the home fell out of escrow, and what were the important issues facing the seller.  I was informed the seller had just moved to an assisted living facility and was concerned about her children having time to come in from out-of-town and being able to get her belongings out.  Simple fix.  We offered to give them extra time after closing to handle this…at no cost to them.  Piece of mind goes a long way!  I also discovered the seller wanted to close ASAP.  Again, an easy fix as we offered to close on their time frame.  As you can see it’s really just about communication and a meeting of the minds.  Thing is buyers have to come to grips with the fact that this is a seller’s market and sometimes that takes losing out on a few places to get it.  The right agent and strategy around timing and terms makes a world of difference.

The Right Terms

Every buyer has their own set of circumstances.  So I want to remind you that you should do what you feel is best when it comes to your situation.  But you need to think about what you can, and cannot, live with and how can you make your offer the most appealing to the seller.  Here are some common terms buyers offer up:

  • Closing time frame
  • Inspection time frame
  • Appraisal and loan contingency removal
  • Who pays for title, escrow, repairs, warranty, etc
  • Deposit amount

Agents tend to draft offers based on local custom.  What happens is they often use a “Contract Template” with the same default settings.  Real estate is not cookie cutter and you should discuss with your agent what you can do differently to make your offer stand out.  If that also matches up with terms and timing the seller has mentioned, you could be the winning bidder.  You may want to offer to close faster, or pay for things like warranties and termite reports vs. having the seller pay for them.  Make it as easy as possible for the seller to accept your offer.

Case Study Part 3:  After talking with the agent we knew why the property had fallen out of contract, when the seller wanted to close, how much time they needed after closing to remove personal belongings, what they did not want to pay for, and who the agent liked to use for services such as title and escrow.  We also knew there were competing offers and one was cash.  After considering all this and reviewing the sellers counter offer, and speaking with their lender, the buyer decided to make it easy for the seller to accept their offer.  They came in a little higher than their initial offer, increased their deposit, agreed to take the home in “As-Is” condition, and offered the seller even more time after closing to clean the place out.  The end result?  Cash is not always king!

   

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