How to Close More Deals by Being a Cash Buyer
For those who are new to this show, welcome. You are reading the number one show on the topic of wholesaling real estate. If you’ve never heard of me, I am the coach of Virtual Investing Mastery. I am obsessed with wholesaling and real estate investing outside of my hometown. We call this virtual investing. I am going to talk about the benefits of being a cash buyer. The reason I wanted to talk about this is that it’s very important in your negotiations with sellers, that you are able to convey and express the benefits that cash buyers bring to the transaction. If you are able to explain this to a seller, you are going to close more deals. You see, often, a cash buyer is a seller’s only option.
In this episode, I am going to explain the cases when this is. You are going to learn a lot and I hope that you are able to take some of these lines that I’m going to give you and take these into your seller negotiation. Please, get out a pen and paper, be prepared to write some stuff down because I’m going to be dropping gems. These are lines that I’ve used in my negotiations for years.
Why do sellers prefer cash buyers? A little background. I’ve been buying and selling real estate for years. I started out as a house flipper. I was buying properties with cash myself and I was doing direct-to-seller marketing. Like some of you guys are probably doing as wholesalers, you’re marketing direct-to-sellers, I was doing the same thing but I was keeping what I wanted as flip properties and then I was wholesaling what I didn’t want to work on.
In that experience, I was able to explain confidently the benefits that I brought to the table. After talking to so many sellers in all different situations and also flipping a lot of houses, I was the seller who was putting a house on the market in dealing with conventional loans, I learned that there are so many benefits of being a cash buyer versus the buyer that’s getting a conventional loan.
If you are wholesaling real estate, you still need to know the benefits because your end goal is you’re wholesaling to a cash buyer, most likely or an investor purchaser of some kind. Whether you’re working with cash buyers or you are the cash buyer, the better that you can explain these benefits to the seller, the more deals you will close.
I am going to explain all the ways conventional loans kill deals. I’m going to get into appraisal contingencies. I’m going to explain what they are and I’m going to talk about how they kill deals. I’m going to talk about inspections and when they go poorly and how that can affect your traditional real estate transaction. I’m going to talk about when closing dates get moved and how cash buyers are able to control closing dates better than a buyer with a conventional loan. I’m also going to explain in general, why a cash transaction is just less work than a transaction that involves a buyer getting a conventional loan.
The first topic is appraisal contingencies. Let’s just say all things being equal, the price is equal. You’e got a seller and they’ve got a cash offer of say $100,000 and they also have a conventional loan of $100,000. Let’s say the price is equal. Hands down, the cash offer is always going to be preferred over the one with financing and why is that?
Number one is appraisals kill deals. Here’s how that works. A conventional lender is going to require that a house gets appraised by a third-party appraiser. This appraiser’s job is to look at the comps of the area and compare those comps to the subject property and determine the true value objectively of that home.
The reason the lender wants to know that is that the lender doesn’t want to be stuck with a property that is worth less than what they’ve lended on. Lenders typically will not lend over a certain loan to value to keep themselves in a safe position. Let’s just say it’s 80%, that’s an average. You hear that a lot, a buyer puts a 20% down payment on a conventional loan.
That means that the loan to value would be 80%. If the lender puts any more and say the property value goes down or maybe the property was never worth the amount they said it was at the time of the transaction. If that buyer defaults, the lender is in a bad spot and they won’t be able to recoup their loan.
That’s why they put themselves in that position of 80% loan to value and they verify the value of the home via an appraisal. Say the buyer and seller are in that stage where they’re getting the appraisal done and they agreed on a price of $100,000 for the home and the appraiser says, “That house is worth $90,000, $10,000 less.”
What happens? Does the lender go ahead and make the loan anyway because it’s just $10,000? No. The lender shuts that transaction down. That lender will say, “Buyer, you either need to come up with $10,000 to make up for that difference of your own cash or we’re done. No transaction,” or the seller will have to lower the price to $90,000 to meet the appraised value.
Often, you’ll hear appraisers say, “The appraisal came back at value.” That means that the appraisal came back at that $100,000. The value that is on the purchase agreement. Either the seller has to lower their expectations and lower the price by $10,000 or a buyer has to come up with $10,000 to make up for that because the lender is not going to go above 80% loan to value.
In this situation, you’re very much at a crossroads here. Somebody’s going to have to give and a buyer in that price range does not usually have an extra $10,000. Most of the time, the buyers don’t have that much extra money to put in but sometimes they do or seller has to come down on price. Either way, it’s frustrating. The seller is going to get frustrated.
Say you’re on the phone with the seller, you’re negotiating to try to get this seller to work with you and they say, “I can just put this house on the market and I’m going to get $100,000 for my house. Why in the world would I sell it to you for $85,000?” You could take an honest look at that home and say, “Would your house appraise for $100,000? I know that your neighbor sold their home for $100,000 but your neighbor’s house was remodeled and yours isn’t.”
You need to be able to look at that seller’s house and honestly assess it. If the seller is being a little bit overly optimistic about the condition of their home, you might want to explain to the seller, “Your house might not make that appraised value and you might end up putting a house on the market with a realtor, getting locked up into a transaction, being forced to reduce your price anyway and now you have to pay the realtor commission on top of that.”
When you’re dealing with a seller that has a house that does need to be remodeled and you know they’re not going to get that high value that’s in the neighborhood that they’re thinking, this is your best negotiation strategy is discussing appraisal. Another way to look at this, our real estate market is absolutely insane. We are very low on inventory and buyers are so desperate to be homeowners. Some of this is psychological. The interest rates are low so buyers are also wanting to get in when interest rates are this low because they expect them to be going up. Now it’s a great time to buy. There’s also such low inventory that it’s making buyers anxious that if they don’t get in now, the prices are going to keep going up. What’s happening is buyers are offering crazy prices to sellers out of desperation. They are taking the highest price in the neighborhood and adding $10,000 more to that.
What’s going to happen is when they get into escrow, the appraisal’s not going to come out at value. Their appraisal is going to come out at probably maybe the highest price in the neighborhood or whatever that appraiser deems fair. That buyer is going to either get stuck with having to put cash into the transaction to close it or the seller’s going to have to reduce their price.
In the market now, we are seeing this happen more. When you’re dealing with sellers right now, explain that. There’s still this little thing called appraisals that keep us honest. Although you think that you’re sitting on gold, you might end up realizing that you’ve wasted a bunch of time and you’ve also locked yourself in with a realtor and now you have to pay a realtor commission. You ended up netting less.
Inspections Kill Deals
That is about all the main reasons why appraisals kill deals. Let’s get into why inspections kill deals. If the price is equal, hands down, a cash offer is always preferred and the next reason is because of the inspection. Inspections kill deals and this is how they do it. Let’s say a seller has a house that has some serious repair issues. My favorite way to explain the benefits of working with a cash buyer is because their house likely wouldn’t pass an inspection.
We’re not talking about the seller who has a completely remodeled home. That’s not your seller. If you have a seller that has a house that has some significant repairs, that’s the seller we’re talking about. We’re talking structural damage, termites, plumbing, some roof damage and cracks in the walls.
If that seller takes their house to the market and the buyer gets a conventional loan and inspection is going to be done. That lender is going to request that inspection and see that there’s structural damage to the home and the lender is going to say, “I’m not lending on that unless it’s fixed.” The problem lies that the buyer did not have the money to fix that house. Otherwise, they would have in the first place. Now the buyer is being forced to fork up tens of thousands of dollars to fix some issues before the loan could go through.
Conventional loans kill deals.
What happens in that situation? The seller doesn’t have the money. If you are a wholesaler or you’re a cash buyer and you’re talking directly to that seller and you’re saying, “I know you want to put your house on the market because you want to get the top dollar but what’s going to end up happening is your deal is going to get killed anyway because it’s going to go to inspection and the inspector is going to call out the plumbing, the roof and the foundation.”
“The lender is going to see it. The lender’s going to kibosh that deal and you’re going to be back to talking to me again and you just wasted several months of your time.” In these situations, when the seller has a house that needs a ton of repairs, it is in the seller’s best interest to sell to an investor unless they had the money to make the repairs.
If they have the money to make the repairs and they want to go through the hassle of selling it on the market thing, go ahead. Recommend a realtor for them but if they don’t, it is in their best interest. I’ve personally had to put $5,000, $10,000 in foundation work to close a house that I flipped. I’ve had plumbing damage.
I had this house that everything was wrong with it and with every inspection, we would find more things wrong with it. I had to completely redo the plumbing during escrow wants to sell it. It was crazy. I know firsthand what this could be like and I was lucky that I had that money to repair the home and close the sale with a conventional loan and get that market value but a lot of sellers do not have that cash.
That requires cash. That requires the means to do so. That requires also having a plumber or a reputable contractor that they know that they can trust to get the work done. If you can convey this to a seller, the seller is going to trust that this is their best option. If the seller has never been through this type of sale before, they don’t know and a realtor is not going to explain this to them.
The realtor is going to put on some rose-colored glasses on that seller and hope that the seller has blind optimism and signs with them. It’s your responsibility in your negotiations to explain what the reality is. Take those rose-colored glasses and explain to them that, “Mr. Seller, Mrs. Seller, you’ve got a home that has some serious repair issues and you are going to have to fix it to get a buyer that can get a conventional loan on this home.”
Closing On The Date You Choose
The next thing I want to talk about is being able to close on the date that you choose. When you are an investor and you’re coming in with cash, you have a lot of control as to when you can close the sale. If the seller has some time issue like they need to close by a certain date because they need to move. Maybe they need the money to move into their new home or they need the money fast because of some motivation or issue that they’ve gotten themselves in financially, you are their savior.
You are the person that’s going to be able to close on the date that they choose. When you have a lender, 99.9% of the time, that closing date is going to get moved around a lot and that’s because of paperwork. It’s because you’ve got more people in the transaction that have to do their work, their paperwork and get things done.
You can run into some issues when a seller is relying on a specific closing date and we’re relying on a conventional loan. I’ve personally had escrows get moved, not just weeks but a month because the lender couldn’t get it together. It’s important that if there is some timing issue with the seller, that cash is used to close that sale versus a loan. The better that you can convey and express this to the seller, the more deals you’re going to close.
The next thing is the hassle factor of a conventional loan. I’ve done so many of these transactions. I like to say that I have been a motivated seller before because some of my flip deals have not gone super smooth. Some of my flip deals were very difficult to sell. I had a flip property once that went through two different buyers.
This thing took eight months to sell. It was a nightmare. I had a buyer who was working with a lender. This buyer was not truly qualified for the loan but the lender said they were, which happens from time-to-time, guys. Lenders aren’t always honest. They try to push for the deal because that’s how they make money.
They make money when they give out loans. This guy wanted his commission so he tried to push a deal through that just wasn’t going to work. The buyer was not financially qualified to buy this house but they kept pushing the closing date. They kept acting like it was going to go through. The lender kept assuring me that everything was going well. The appraisal contingency came back at value. The inspection came out great and clean. We were waiting on paperwork.
It was a lot of work and the lender kept making excuses and it was beginning to look a little shady when they asked for an extra four weeks to close the deal. I didn’t understand at the time what was going on. I didn’t know enough but I realized that the lender was then getting him requalified for a loan.
I pushed back the closing date. I give him an extension of four weeks to get his loan and the next thing you know, that day comes up and they’re asking for another extension of another month. By this time, it’s been three months. I’m going, “Forget it.” I know that this buyer must not be qualified. I canceled the escrow but what ended up happening for me is I ended up going through another buyer that had issues getting their loan approved as well.
This was a low-income area that I had this house in. I kept running into buyers with the same issue. It was a lot of hassle. It was a lot of work to sell this home. I know what it feels like to be a motivated seller and it is not fun. By the end of it, I wanted to give that house away. I was so tired of it. I didn’t care anymore. I wanted somebody to take this problem away from me.
If you have a seller that is dealt with a lot and they don’t want to deal with hassles in their life anymore, you need to be able to explain how a cash buyer is their best option because we eliminate a lot of the hassles that come with getting a conventional loan. The more that you can explain this, the better.
Hopefully, my little story illustrates for you what a motivated seller looks like and feels like. It can be draining. Remember, I was somebody who was a professional house flipper. I knew what I was doing. I knew what to expect but at the same time, I still felt that motivation and it felt very desperate and hopeless, honestly.
Cash buyers can control closing dates better than a buyer with a conventional loan.
I remember feeling like, “Please, somebody call me and make this problem go away.” You have to think there’s a lot of sellers out there that they’re not savvy in real estate. Real estate isn’t their thing. They maybe got this home inherited somehow or it was a home that they once lived in that they don’t live in anymore. Whatever the deal is, there are sellers out there that do have the true motivation and they are debating whether they should put the house on the market and deal with that more conventional buyer with the conventional loan to get that extra $10,000, $20,000, $30,000.
They might not realize all the things that could go wrong in that sale. If they’re already going through a lot in their life, if they’re already stressed out with something in their life, they might not want to put themselves through that. It’s your job to explain the benefits of a cash buyer to them so they can make that decision for themselves and the better that you’re at it doing that, the more deals you’re going to close.
That’s it for explaining the benefits. I hope you got a lot out of that. If you are interested in being serious about your virtual investing journey, check out VirtualInvestingMastery.com with Wholesaling Inc. That’s my coaching program on virtual wholesaling. It’s amazing. I’ve got a huge group. They’re amazing students. If it is something that you’re looking to get into and you want to take it seriously, check that out. Thank you so much for reading this episode. Hopefully, you got some practical tips. Take this information down and use it in your seller negotiations and close more deals. I’ll see you next time. Thanks.
About Lauren Hardy
Lauren Hardy is a Virtual Investing expert and real Estate influencer who owns multiple companies in the real estate in dustry in cluding real estate investment, coaching, and software companies. Sheis also a Wholesaling Inc coach and co-hostoftheWholesaling Inc Podcast.
Her experience in the last decade has been focused on real estate investing and creating products and services to serve the real estate investing community.If you are interested in investing in real estate virtually, house flipping,or virtual landlording, Lauren’s your girl