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How to Compete With All-Cash Home Buyers if You Need Financing

By Amy Zimmer | September 10, 2014 7:51am | Updated on September 12, 2014 5:34pm
 In this sellers' market, all-cash bids often win. Real estate experts share tips on how to compete.
How to Compete with All-Cash Buyers If You Need Financing
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MANHATTAN — It's not uncommon these days for buyers to pay in cash for apartments, making it difficult for those who need financing to get a foothold in the tight markets of Manhattan and Brooklyn.

But it's not impossible if those buyers do their homework and have the support of good advisors, including a topnotch broker, a known lender and a respected real estate attorney, experts say.

"When you're representing a seller, it's most attractive to get the cash buyer because you know that deal will close without much risk to the seller," said Warburg Realty's Shirley Hackel, who has written about the subject for her firm's blog.

"When you work with the buyer, that buyer needs strategies."

In the first quarter of 2014, nearly 60 percent of Manhattan condo buyers and 36 percent of co-op purchasers in the borough plunked down all cash, according to real estate expert Jonathan Miller, who analyzed sales data from nearly 2,500 sales from Douglas Elliman, Manhattan's largest brokerage firm.

Nearly 70 percent of the 118 sales in Brownstone and North Brooklyn that Ideal Properties Group looked at in the second quarter of 2014, for instance, were paid in cash, up 110 percent from the year before.

But a buyer who can demonstrate that a deal can get done even with financing can still win out, experts say — just be aware that it may take a while.

"It requires a ton of patience and shooting and missing," Jay Glazer of Urban Compass said. "You have to have your ear to the ground and put your feelers out there. You could be in the market for a couple of years.”

Or you could luck out like Glazer, who found his apartment in Park Slope after a four-month search. The seller cared more about who the buyer was than having an all-cash deal.

Here are some tips on how to compete:

1. Bring a complete offer to the table with "full pre-approval."

Not all sellers will automatically pick an all-cash offer, said Glazer, who specializes in working with first-time buyers, the overwhelming majority of whom need financing.

Sometimes all-cash bids in a "best and final" showdown are submitted with incomplete information, Glazer noticed when working with sellers.

"The reality is, if you're in 'best and final,' you can't go back and ask for more information," he said. "When you have all-cash, sometimes you get lazy."

That's why when Glazer works with buyers, he makes sure they complete their due diligence, making sure they have a good lender and an attorney — known as a "deal maker" rather than a "deal breaker." He also advises clients to have full pre-approval with a complete financial report, including a credit check and salary and job history, plus an asset and liability report.

"Walking into your local Chase branch and getting pre-approval is not really pre-approval," he added.

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2. The next best thing to cash: Go non-contingent.

Waiving a mortgage contingency isn't for the risk averse. The contract provision allows the buyer to have the deposit refunded if he or she is unable to secure financing within a set amount of time. If you choose to forgo the contingency and are unable to get a loan and find another way to finance the deal, you'll likely lose your deposit.

"If you can remove financing contingency, that's almost as good as cash," Hackel said. "I always tell my buyers, you can't waive finance contingency unless you're 100 percent certain you will get it. Otherwise you're stuck with it."

3. Protect yourself with a funding contingency or offer a shorter contingency.

Since waiving the contingency can be daunting to some buyers, Douglas Elliman's Frances Katzen suggests putting a funding contingency on some contracts, so that buyers won't lose their deposit if the bank won't give a loan because it finds something wrong with the building.

"What that means is should there be any latent defects, should there be an issue with the building itself, I will not lose my deposit," she explained.

The funding contingency does not protect buyers who are denied loans because of personal qualifications that disqualify them.

Or instead of a contingency clause that lasts 30 days, shorten it to seven days, advises Hackel. "Then the seller is only waiting for a week," she said.

To do that, however, you need a strong relationship with a lender.

"I can go back and say to a lender, 'Can you do this in a week's time?,'" she said. "And then I can say to the seller, 'All we need is a week contingency.'"

4. Cough up more money: Raise the down payment, bid higher, finance less.

Down payments are often paid in steps, even with all-cash buyers, with the first payment — typically 10 percent — paid when the contract is signed.

Glazer recently helped a buyer win a Greenwich Village alcove studio in a co-op listed for $525,000 by having the client — who bid $604,000 — put down 12.5 percent at the closing.

"That 2.5 percent showed we were confident in our offer," Glazer said.

Hackel recently represented a seller of a two-bedroom co-op in a Lenox Hill that received four bids in less than a week. Two were all-cash, one would not remove the mortgage contingency and the other — which ultimately was the highest and winning bid — agreed to removing the contingency and financing less.

The buyer opted to finance 15 percent instead of 40 percent, as in the initial bid, and is now in contract for "substantially more" than the asking price of $1.365 million, Hackel said.

5. Be flexible to meet the seller's needs.

A buyer who has the ability to give a seller better terms can get a leg up.

"Does the seller need a longer closing because they are renovating their new home or they haven't found their new home?" asked Veronica Raehse, of BOND New York.

6. Write a love letter

There's still an emotional element to selling a home, Glazer said, especially for a family that's been there for years.

"Sometimes if you write a letter, saying 'I love your home and I can tell you love it, too,' it can help," he said. "A lot of time the finance guy doesn't realize that sentiment drives a lot of real estate."