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How do you Compete with a Cash Buyer?

Discussion in 'Property Finance' started by rhinsor, 6th Aug, 2015.

  1. rhinsor

    rhinsor Well-Known Member

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    I recently found a house 20% under value but they only wanted a cash sale and that is what they got. The property is now under offer.

    So how does one compete with a cash buyer?

    The only things I can think of is offering more money, having no finance and B&P clauses.
     
  2. jaybean

    jaybean Well-Known Member

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    Yup more money. Maybe unsophisticated vendors might be tricked by a huge deposit. i.e. 50k in cash. TODAY. RIGHT NOW. It means literally nothing as it sits in a trust and you'd have to pay it anyway as part of your 10% deposit but next to the standard 0.025% deposit it might look good, again only to clueless buyers / agents.

    But yes otherwise it's very difficult.
     
  3. barnes

    barnes Well-Known Member

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    Could you get a further discount if you were a cash buyer in this situation?
     
  4. rhinsor

    rhinsor Well-Known Member

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    It wasn't me who go the property unfortunately.
    If I did it would be cash flow positive and would of given me a deposit for my next purchase.
    I don't think they would of go lower, the property is a renovators dream.
    The property listing was $330,000.
    Properties in average to good condition go for $410-$440,000.
    It would of cost about $15-20K to get it up to scratch.

    The agent has a few more properties in other suburbs with the same conditions so I'm not sure who owns them.
     
  5. andrew_de_a

    andrew_de_a Active Member

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    How does it matter to the vendor if its cash or financed form the bank? It all hits their bank account the same on setement day.
     
  6. FireDragon

    FireDragon Well-Known Member

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    If I really want the property, I will pay the 10% deposit and go unconditional. The risk is if you can't get the finance ready or if you don't want to go ahead for whatever reason you may lose the 10% deposit or if they sell to another buyer with a lower price you will need to pay the difference.
     
  7. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Certainty.

    A "cash buyer" means the vendors know they will get the money.

    A buyer borrowing can have their finance fall through during their finance window.
     
  8. andrew_de_a

    andrew_de_a Active Member

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    I have worked in real estate for 10 years and have never had someone not settle. Not saying it doesn't happen, but it extremely rare in my experience.

    And just because they are paying cash doesn't mean they can settle with certainty either.
     
  9. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    @andrew_de_a, if a buyer with an unconditional (or at least, without a finance clause) offer fails to settle, the vendor has legal recourse. They do not however, in the case that a buyer with a finance condition fails to obtain said finance.

    If, as a typical vendor, you have two identical offers from buyers, one with a finance clause, one without...which offer gives you more comfort?
     
  10. albanga

    albanga Well-Known Member

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    I would expect it to happen a lot more in the current lending climate. A house my wife is interested in sold recently at auction and then was listed a week later, lucky for the vendor they then went private and got an extra 50k.

    I agree though, I see very little difference why a "cash" buyer is better and ecspecially to the tune of 20%!!! I would be asking some serious questions on this as my first thought would lead to something seriously wrong that wants the vendor to get an unconditional purchase.
    Yes the purchases still has the right to a building inspection but if listed at such a low price people will do DUMB things and just Rush to buy unconditional.
    You said 330k and it could sell for 410-430. Firstly if it's run down as suggested and your not a professional renovator add 20-30% to your reno figure so maybe a 30k reno. But then it could be an absolute structural mess hence why a fire sale. You now need to spend another 40k plus far longer holding costs.

    Not saying this is the case but it is exactly what I would be thinking. Let's also not forget we are talking 330k. It's hardly concern for finance failing.
     
  11. Chilliblue

    Chilliblue Well-Known Member

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    All being equal, you will never beat a cash buyer because they have one up on you.

    Speak to the agent and try to find something you can offer that the other party cannot.

    - more money
    - better settlement term

    etc
     
  12. andrew_de_a

    andrew_de_a Active Member

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    Are you talking about and offer with a finance clause versus an all cash offer (ie no bank required)?

    Or an unconditional offer using the bank versus an all cash offer?


    I am referring to the latter.
     
  13. D.T.

    D.T. Adelaide Property Manager Business Member

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    Have a confident / competent mortgage broker so that you can offer cash basis yourself
     
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  14. albanga

    albanga Well-Known Member

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    My thoughts exactly? Am I missing something here? But is cash not just unconditional? What's the difference between that and an auction? OR if the vendor wants private say then that versus not having a "subject to finance" clause?

    I mean the house still needs to settle. Perhaps it could be done quicker but what 10 days? You would cost yourself 20% for 10 days?

    And when they say cash are you suppose to come and hand them a sack with a dollar sign on it? Or do they want it all in $1 coins with a diving board so you can jump in like Scrooge McDuck?
     
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  15. D.T.

    D.T. Adelaide Property Manager Business Member

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    Just no finance clause. There's plenty of deals here that fall over because the buyer couldn't get a loan. I've monitored these and swooped in and "saved them" by giving them peace of mind of unconditional
     
  16. albanga

    albanga Well-Known Member

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    haha "saved them". Your a modern day Robin Hood D.T ;)
     
  17. jaybean

    jaybean Well-Known Member

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    It's quite simple. Guy has a 500k margin call, needs money in 2 days. Sells 800k house for 500k. Who does he go with - guy that can literally get the money within the hour, or the guy that says wait give me a few weeks, I'm pretty sure I can get the cash?
     
  18. The Y-man

    The Y-man Moderator Staff Member

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    Agree with thoughts above that in most cases, "cash sale" = "unconditional (finance)"

    Only way you can beat that would be higher price, less conditions if any, and shorter settlement etc.

    On the other hand, I have recently purchased a property where it was going to be difficult to get financing on due to a special condition - so while the vendor was happy to sell to whoever, it was going to likely crash on the financing side for a "non-cash" offer. In this case, we squeezed the price quite low and bought it cash (from redraw).

    The Y-man
     
  19. jaybean

    jaybean Well-Known Member

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    Yes, actually. I've seen it before. When people are desperate, they are DESPERATE.
     
  20. albanga

    albanga Well-Known Member

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    So the buyer is handing over 500k cash before the house settles?