Competing With Cash Offers in the Colorado Real Estate Market

  • Don & Kelly O'Brien
  • 02/21/22

If you're a homebuyer in the Colorado real estate market today, you are accustomed to competing with multiple offers on most properties. Second to the best price being offered, sellers and their listing agents are next looking to the strength of the financing associated with each offer and then desired terms.  Cash offers of course rank at the top and garner the most attention because they can simplify and streamline the closing process for everyone.  Cash buyers can typically close faster and more easily remove later-stage contract contingencies such as the appraisal and loan approval, which can be provide a lot of anxiety and drama in a real estate transaction.  In our experiences with buyers and submitting offers in the first couple of months of this year, we've noticed an increase in the presence of cash offers mentioned by listing agents each week as our competition and in most cases declared the winners of the bidding. 

So, it was interesting to see some data recently from our Compass-affiliated title company, First Alliance Data, showing cash versus loan transactions at their company for the past few years and the largest increase visible in the last year. The percentage of cash transactions at First Alliance Title last year was 23%, up from 14% in 2019. 

That's a notable jump in just two years and we suspect a new market contributor to this increase that may become more obvious this year.  We'll be keeping an eye on how many offers are being written as cash with backing from newer financial technology companies that are essentially providing bridge financing for homeowners until they can sell their homes.  Cash-buying programs are available to all qualified buyers as well.  They just refinance the purchased home with the company once the sale is closed with cash.  There are so many of these companies now that they are hard to keep track of, but you can see why they are gaining traction in a competitive market where it's difficult to make your offer stand out with financing, even with a big down payment.  Our company has a partnership with one of these companies as well and we were recently certified to begin offering the program to our clients.  Let us know if you're interested in learning more about how they work.

Another interesting data point surfaced when First Alliance Title pulled its cash transactions. They found that the cash transactions had a higher termination rate than financed transactions, a significant 5.7% more of those contracts failing or falling out.  There are no real clear indications why this must be, but it's a good reminder to sellers and listing agents alike to carefully weigh and evaluate all offers for the best chance of getting to a successful closing the first time around.  One of the biggest factors we value as listing agents is the motivation of the buyers and reasons they chose the home. This is not on the contract of course, but this is why verbal communication with other agents is so important.  We learn so much more by initiating conversations with buyers' agents and then listening to the reasons why a particular buyer wants the home.  

Lastly, we thought we'd share a some ways that buyers using mortgage financing can better compete with cash offers:

  • Offer non-refundable earnest money to be released to the sellers upon accepting your offer or after contract milestones like the inspection resolution.
  • Eliminate any inspection objections upfront and offer to purchase the home as-is following a satisfactory inspection. In the Colorado real estate contract this would be considered an Inspection Termination only date.
  • Offer to cover any potential appraisal gaps by agreeing to increase your down payment.
  • Remove any other contract contingencies within your comfort range such as HOA review and of course anything related to appraisal and loan approval at the end which would give sellers the greatest amount of certainty and confidence that you're going to buy the home.

It's a competitive market for buyers and likely to remain that way through most of 2022, so we find it helpful to discuss all of these strategies in depth prior to even submitting the first offer with our clients.  We also encourage buyers to do an honest assessment of their risk tolerance because to win in this market it requires buyers to get outside of their comfort zone.  They have to be bold and confident buyers right now.  Lots of upfront strategy discussions and a deeper understanding of the contract helps them get there.

 

 

 

 

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