How to Compete with CA Cash

body of water during golden hour

So, you found the home of your dreams…you’re prepared to make an offer- all your ducks are in a row- you begin to imagine how you’ll decorate, entertain and live in the space….then you get the call from your agent, “Your offer was not accepted, they went with another buyer, from California…a full cash offer over asking.”  This frustrating scenario has been playing out all over the valley in every price point- it’s not just you- it’s everyone out there having to compete with Californian cash buyers.  Many of my buyer’s have asked, “What’s with all the cash?” or, “Why is that more appealing,” and finally, “How am I ever going to compete with that?”  After living out this scenario many times with our clients over this past year, we have come up with the best possible defense against this disappointment, although not guaranteed, results have been promising.

What’s with all the cash?  Well, many CA residents have gained enormous amounts of equity (just like AZ residents) over the past 8-10 years.  Coupled with the fact that average home prices in CA hover around $706,000- but really $1 Million- these buyers are entering our Real Estate market with pockets full, ready to go.  “Cash is king,” we hear so frequently and in the RE industry it’s so true- cash means you can close quickly, can avoid the appraisal and often cash buyer’s don’t get hung up on the small stuff that comes up in an inspection.  For this, consider if you were the seller; would you rather wait close to 20 days to make sure your property appraises or forget that all together and start the packing early?  What you can do as a non-cash buyer is consider taking the home in “as-is” condition.  This means, if written correctly, is that you would maintain the right to inspect the home, however, you won’t ask the seller to repair or credit you for anything that comes up.  You either take the home “as-is” after your inspection, or you cancel.

Why is that more appealing?  Cash gives sellers a certain level of security, it makes the transaction less stressful and as mentioned above, it can really shorten the transaction.  With lenders able to close transactions in 30 days and sometimes less, you can stay competitive with timing.  Speak to your lender about each property before you make a formal offer, often with larger cash down payment on your loan, the lender may receive an “Appraisal Waiver,” which means the bank/underwriter already approves the value of the home based on their valuation models which asses risk and your credit worthiness.  If you can find out if your loan and the property qualify for a waiver, you have a leg up here too.

How am I ever going to compete with that?  Well, you need some cash and it would be best to have 20% or more to put down on the home. The biggest issue buyer’s run into here is that most of their money for the new home is tied up in their old home, therefore, creating a contingency situation which is unlikely to win. To really look competitive, you might need to exhaust your cash reserves to buy the home, then replenish them once you have sold your home.  Consider your long term savings accounts like 401k’s or IRA’s; you can tap into this money for a period of time without incurring a penalties if you replenish the money by the deadline.  Speak with your financial planner about the rules and restrictions as you may only have access to a certain portion of the funds.

The influx of buyer’s from California and other states doesn’t look like it will slow anytime soon. The final word of advice to buyer’s out there trying to compete, is to be decisive.  I often tell buyer’s, “you know if it’s right, right away,” and often from the first couple steps inside.  Don’t wait on that gut-feeling, get to work right away putting together your best offer.

Written by: Misha Renteria



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