In a Bidding War, Is Cash Always King?  

March 1, 2021

It all depends.


Being able to make an all-cash offer on a house will usually give a buyer an edge in a multiple offer situation.  But if you are one of the vast majority of buyers who don’t have the hefty sum that it takes to pay cash for a typical Washington area house, don’t give up.  And if you are an all-cash buyer, don’t get too cocky!

Sellers like cash because it’s a homebuyer’s easy button.  There is no loan application, no waiting around for loan approval, and especially important if the price gets bid up into the ionosphere, no appraisal.  And buyers often assume that all cash with a fast settlement means the seller will accept a much lower offer than if there was financing involved.  But it isn’t that simple.

When evaluating competing offers, sellers are looking for two big things.  First, they want as little risk as possible. Second, they do consider seriously their bottom line – how much money will the title company wire to the seller’s bank after settlement?  And while offers with most types of financing can be a little risky, buyers can take steps to mitigate the risks inherent in an offer with a loan from a financial institution.

Here are some suggestions to make an offer with financing more palatable to sellers:

  • If you have any large stock or retirement accounts, you may be able to borrow against them short-term, and get a home mortgage after you go to settlement.  This allows you to make an all-cash offer.
  • Include a large earnest money deposit check. If you default, this amount could go to the seller, but in a sea of offers, a large deposit could make yours stand out, showing that you are indeed earnest. If you are not earnest, this might not be a great idea.
  • If you have to get a mortgage, line up your financing before you hit the streets.  Some lenders will take your loan application and put it through the underwriting process, meaning your loan is fully approved, subject to finding a house and getting an appraisal. This may give you some agility if the sellers need a fast settlement that a cash offer gives them.
  • When your lender gives you a pre-approval letter, make sure that it says clearly that you have been pre-approved and gone through the underwriting process. Many lenders will only provide a letter saying you have been pre-qualified – a distinction that can make or break your offer.
  • In this area, it is the custom for buyers to provide a financial information sheet showing income, assets, and liabilities.  In a bidding war, you want to make yourself look as strong as you can. Don’t overstate assets or understate liabilities, but it’s best to appear to be overqualified to buy a home that costs less than you could actually afford.   
  • Leave the financing and appraisal contingencies out of your offer.  There is not a lot of risk of not getting the loan if you are pre-approved, except for the appraisal part of the equation.  It’s common for a bidding war winner to pay more than the market value of a home, and it may not appraise.  This means you would have to increase your down payment.  Let’s say, for example, you agreed to pay $1,000,000 for a house with a down payment of 20 percent, or $200,000.  If the appraiser values the property at $950,000,  the bank would loan you only 80 percent, or $760,000.  You would have to be in a position to increase your down payment by an additional $40,000.
  • In a bidding war, a VA or FHA loan could make your offer less competitive because government-insured loans tend to be tricky, with appraisal and property condition issues that can be a hassle for sellers. 
  • A good buyer broker will call the listing agent to find out what the seller needs in terms of the settlement date, a post-settlement occupancy period, agreeing to feed the feral cat who hangs out in the back yard – whatever it might take to make your offer a standout.  The idea is to carefully tailor your offer to accommodate any reasonable needs the seller might have.
  • If you are in a bidding war that you plan to win, do whatever it takes to handle the home inspection before you make your offer.  Many buyers opt of what we call a “walk and talk” inspection.  The inspector does not provide a written report but will go through and check the structure, major systems, and appliances.  If he finds something scary, you might decide against the house. But if it looks good, you will increase your chances of getting the property.
  • The most heart-wrenching letter to the sellers about how much you love their house and want to raise children who will love to play in their back yard – well, it won’t work unless it’s attached to the best offer.

I’ve found that for most bidding war winners, it is not their first rodeo. There is a learning curve. For each house they “lose”, the offers they make get progressively cleaner. At some point, you get that it’s not about getting lucky. It’s about getting prepared.