Why do sellers prefer cashBuyers who are getting slammed out of the Silicon Valley real estate market due to low inventory and multiple offers are extremely frustrated. In many cases, they write offer after offer, and each time not only are their bids rejected, but they never even get a counter offer.

You should not depend on getting a 2nd chance, of course.  Just because you write a contract on a San Jose area home does not mean that the seller needs to give you a counter offer.  Some agents and sellers don’t respond at all – not nice, but if you get dozens of offers, sometimes that does happen.  Sometimes they just take the best offer and run. Othertimes they only counter the best offer and forget the rest.

The question arises all the time: why isn’t my 20% down offer just as good as the 50% down or the All Cash offer? Isn’t 20% down good enough? Or for that matter, why wouldn’t a 3.5% FHA backed loan be suitable?

Cash is better because there’s less risk

Twenty percent down is “good enough” if there are no other offers. If it’s multiple offers, though, it’s probably not sufficient for most sellers provided that the all cash offers are written with realistic pricing. Right now, 25% of all sales in Santa Clara County are all cash, and sellers would far rather deal with an offer that includes no finance or appraisal contingencies.  For sellers, the fewer contingencies the better and no contingencies is ideal.  Particularly now, when we are seeing a very sudden and dramatic upswing in pricing, appraisal contingencies can kill an offer’s chances of success. With all cash, there is no appraisal at all – it’s a slam dunk on that front.

What happens if the property doesn’t appraise?

With the 20% down (or FHA or other loan product) situation, if the property does not appraise to the sales price, either the buyer will have to put in more cash, the seller will have to reduce the price, or the house/condo/townhouse will end up going back on the market.  That appraisal is a great “safety net” for buyers but for sellers it’s an albatross!

Don’t lose heart, many cash buyers are unrealistically low in their bids

What I’m finding is that with multiple offers and cash buyers, some of those with money in hand are overly confident on what that no-loan status will bring them.  Recently I got 20 offers on a Santa Clara condo listing, 8 of them cash, but of those, only 2 or 3 were really ever contenders.  The rest of the buyers who were flush with money grossly under bid the home.  The cash is probably worth a 2-3% discount – but some cash buyers were off by much more than that – a giant gap of more than 15% from the lowest cash offer to the highest financed offer.

In most cases, the best cash offer will get a counter that raises it closer to the financed offer – but perhaps not all the way to that amount.  But the unrealistically low cash offers will get completely passed over.

As a buyer with a loan, what can you do?  Here are a few ideas:

  • Try to avoid multiple offer situations (that may mean bidding on properties which are overpriced, distressed, need work etc.)
  • Ask your agent to assist you in finding off-market properties (this will probably involve your signing a buyer broker agreement, since the MLS is the way in which agents are promised compensation for their work)
  • Analyze which parts of the valley appear to be over heated – are there other areas which would suit you as well which are not getting so much attention? you may find a much better deal, and better odds, there.
  • Find ways to make your offer less risky to the seller.  Some buyers will write non-contingent offers (no loan or property)

It’s hard to be a buyer right now, especially a first time home buyer.  There are often lots of offers written before one gets accepted.  If you can bring in a larger cash downpayment, it will improve your odds tremendously.  Cash remains king!

  1. 5 beds, 3 full baths
    Home size: 2,435 sq ft
    Lot size: 7,841 sqft
  2. 3 beds, 2 full baths
    Home size: 1,460 sq ft
    Lot size: 6,664 sqft
  3. 1 bed, 1 full bath
    Home size: 770 sq ft
    Lot size: 6,969 sqft
  4. 3 beds, 2 full, 1 half baths
    Home size: 2,239 sq ft
    Lot size: 1,568 sqft
  5. 3 beds, 2 full baths
    Home size: 1,530 sq ft
    Lot size: 871 sqft
  6. 1 bed, 1 full bath
    Home size: 896 sq ft
    Lot size: 1,481 sqft
  7. 2 beds, 2 full baths
    Home size: 1,123 sq ft
    Lot size: 2,744 sqft
  8. 6 beds, 6 full, 2 half baths
    Home size: 6,480 sq ft
    Lot size: 1.67 ac
  9. 3 beds, 2 full baths
    Home size: 1,072 sq ft
    Lot size: 6,098 sqft
  10. 4 beds, 2 full, 1 half baths
    Home size: 2,243 sq ft
    Lot size: 6.82 ac

See all Real estate matching your search.
(all data current as of 12/2/2016)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

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Mary Pope-Handy
Realtor
ABR, CIPS, CRS, SRES
Sereno Group Real Estate
214 Los Gatos-Saratoga Rd
Los Gatos, CA 95030
408 204-7673
Mary (at) PopeHandy.com
License# 01153805


Selling homes in
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Mary Pope-Handy's Live in Los Gatos blog won the 2007 Project Blogger contest, sponsored by Inman News and Active Rain

2007: Mary Pope-Handy and Frances Flynn Thorsen win the Project Blogger Contest for Mary's Live in Los Gatos blog. The contest was sponsored by
Active Rain and Inman News.


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