By Tim McMullen
May 22, 2022

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Here’s one of my favorite stories to tell as a real estate agent, about a young family who achieved what many assume is impossible. Saddled with a mortgage and other baggage, they were nonetheless able to win a bidding war—against three all-cash offers no less—and get the house they wanted.

All-cash offers are typically preferred by home sellers since they’re pretty close to a sure thing. Without the need for a lender to approve a mortgage, the deal is all but guaranteed to go through.

As an agent in a competitive real estate market like San Francisco, I notice that everyone thinks people are buying homes with all cash. This isn’t always true, but nonetheless, this myth tends to scare off buyers who need financing from even trying to compete.

However, I can tell you from personal experience: It is entirely possible to beat an all-cash offer, even if you have a mortgage and other strikes against you. How? Allow me to explain.

Why all-cash offers in real estate rule

My clients—a married couple employed by two prominent tech companies in Silicon Valley—were looking to buy a condo. Upon meeting them, it was immediately clear that they had done a ton of research on the home-buying process and therefore were confident in their ability to purchase.

But in my mind, they were overconfident. They’d never purchased a home before, much less in a competitive market such as theirs. Nonetheless, it was obvious that they wanted to call the shots, so I positioned myself as an adviser rather than a team leader.

Our first offer was for a $1,299,000 condo in San Francisco’s Mission Bay neighborhood. We submitted an offer of $1,150,000 along with a pre-qualification letter from their bank.

It was swiftly rejected.

After this initial attempt, we regrouped. I suggested that we go through the mortgage pre-approval process, and then take it a step further: to have their financial position analyzed and fully underwritten. That way, we could more easily compete with the all-cash offers that were likely rolling in.

Unfortunately, impatience persisted on their end, as another condo in the same building had a rapidly approaching offer date. The listing agent met with my clients during a tour, and pressed them to get their offer ready as soon as possible. We replicated our previous offer, and were promptly rejected, again.

My clients were beginning to think I couldn’t get the job done for them, and I had that sinking feeling in my stomach that I was about to be fired. The signs were all over their faces. Still, they reluctantly agreed to get pre-approved. We finally stood a fighting chance.

Our third offer was a Hail Mary for a beautiful loft that caught my clients’ eyes and hearts. Although it was slightly out of their price range, my once intensely calculated and controlled clients turned into emotional buyers. They loved the place. When we couldn’t come up with the asking price the sellers were looking for, they were devastated.

At that point, my role changed from adviser to counselor. I knew a level of raw emotion would break barriers and allow for trust to be built. I consoled the couple and ultimately showed them my true position: I was on their side in every way. That level of respect ultimately led them to heed my advice and take the extra time to get their financing underwritten.

The underwriting process took two weeks. Once it was done, we submitted our fourth offer, this time on a two-bed, two-bath condo. We learned there were three cash offers already on the table, and that we weren’t the highest bid—another buyer was offering $20,000 more.
To strengthen our position, we used an (occasionally) effective tactic of writing a “love letter” to the homeowners. I felt we had an emotional story to tell, especially considering they had a baby on the way.

It turns out that the sellers had raised their first child in the same condominium. They connected with us, and wanted another family to have the same experience they had in the home. Empathy, rather than logic, kicked in. Against all odds, we won the place.

How to beat an all-cash offer

So how, exactly, did we beat three all-cash offers—including one for more money?

It’s important for buyers to understand the difference between a pre-qualification, pre-approval, and a fully underwritten pre-approval. In order to beat an all-cash offer, you have to put the time in upfront and be as watertight as possible with your financier’s backing from the moment negotiations begin.

What is pre-qualification?

Pre-qualification is the most surface-level document your lender can give you. It acknowledges that the bank has received all of your self-provided information either verbally or through an online loan application. The problem with a pre-qualification is that the bank hasn’t been provided with any official documents to verify income or assets.

A listing agent (representing the homeowners selling their property) is well aware of the looseness associated with a pre-qualification letter and would likely advise his or her clients that the guarantee of cash makes more sense.

What is a pre-approval?

This is the next tier of assuredness. The difference between a pre-approval and a pre-qualification is that, with a pre-approval, income and asset documents have been provided and reviewed by a lender. Most buyers using financing submit an offer with a pre-approval in hand, as most listing agents require one to even consider an offer.

The pre-approval still has holes, however. A review of financial documents is only as good as the person reviewing them. Sadly, many lenders either don’t know how to review these documents in detail, or they do a cursory review.

The reason listing agents prefer cash is because lenders are the biggest variable in the transaction. So it’s crucial you choose the right one.

Most buyers’ hesitation in getting pre-approved, or even pre-qualified, is that they don’t want to have an inquiry on their credit report that could affect their credit score. However, a mortgage inquiry doesn’t have the same impact on your credit score as a credit card or auto loan.

In fact, in most cases the scores aren’t affected at all. You can have multiple mortgage inquiries within a 30-day period and not take a score hit. The system is built this way.

I always advise people to interview at least two lenders from different banks, since a loan is so much more than the interest rate and points. The lender you work with digs through some very personal information. Having a high level of trust and respect for the individual doing that is paramount.

The holy grail of financing guarantees

A fully underwritten mortgage pre-approval is the third and highest tier of security in a financed offer. If a bank has gone through the process of underwriting the loan, it basically means the loan amount is guaranteed, based on income, assets, and credit.

Consequently, these buyers have the green light to purchase the home they desire.

A fully underwritten pre-approval also allows you to close much faster, since 90% of the work has already been completed by the bank. A savvy buyer’s agent will position this type of financing exactly the same as a cash offer; since the money is guaranteed, the playing field is leveled.

The underwriting process takes time upfront—anywhere from a few days to a few weeks, depending on the complexity of a buyer’s financial position. But it gives a buyer an incredibly strong negotiating position, especially in a hypercompetitive market.