May 25th 2022

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 Cape May County, I notice that many people think most, if not all buyers, are buying homes with 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.

How to beat an all-cash offer

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 seller's 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.