Saving up enough money for a down payment on a home can feel like a moving target that is subject to the whims of your real estate market. For buyers in markets where cash plays a critical role, calculating how much to save for a home becomes even more difficult. In some markets, a traditional 20 percent down payment may still land you at the bottom of a long list, behind all-cash buyers. On the other hand, in markets where cash offers are absent, a hefty down payment may make you the seller’s first choice. Understanding the role of cash in your local market can help you decide how much to save for a down payment on your next home.
To get started, let’s check out which markets have the most and least cash buyers, and how to be a competitive shopper in either environment.
Buyers in the Midwest and Southeast, especially Florida, are most likely to compete against all-cash buyers. An analysis of the 51 largest metros in the United States revealed that the top 28 cash buyer markets are all located east of the Mississippi River. Out of the top 10 metros with the largest percentage of cash buyers in Q2 of 2015, eight are located in Florida. The other two top cash buyer metros are located in the Midwest: Cleveland and Detroit.
In the number one market for cash buyers, Miami, an astounding 55 percent of home purchases were made in cash during Q2 of 2015. This figure is actually smaller than previous years, potentially indicating a slowdown in the overall number of cash deals in Miami despite how high the percentage remains.
Dropping to number five on the list, Cleveland, 45 percent of homes were all-cash sales—a full 10 percent less than Miami but still a significant share of the total home sales. In Orlando, the tenth top cash buyer market, the percentage of cash buyers drops by only 1 percent. Homebuyers in most major Florida metros and some Midwest markets can expect that 44 percent or more of the home sales will go to cash buyers.
Least Cash Buyer Markets
Buyers hoping to avoid competing against cash offers should head west. While cash dominates real estate in large swaths of the Southeast and Midwest, it is largely absent west of the Mississippi. Nine of the 10 metros with the smallest percentage of cash home sales are located in the West. Only one East Coast market appears on the list: Worcester, MA, where 21 percent of home sales were cash deals.
Three California markets that also appear on the list—San Diego, Ventura and San Francisco– boast 21 percent cash home sales. Colorado Springs only had 14 percent cash deals.
How To Be Competitive
Fortunately, there are steps that shoppers can take to remain competitive regardless of their markets. If you’re in a cash buyer-dominated market, try these tips:
1. Work out your financing details before you start house hunting. Sellers often prefer cash offers because they are not contingent upon the seller’s financing coming through. Buyers who get pre-approved for a mortgage signal stability and a lower likelihood of their offer falling through—two important considerations for a seller.
2. Sell your current home before looking for a new one. It’s usually easier to secure new financing without an existing mortgage and you can avoid a contingency clause about selling your existing home that may make sellers hesitant to accept your offer.
3. Indicate your willingness to make other concessions. While it’s generally advised that you never skip a home inspection, being willing to waive an inspection, work with the seller’s preferred escrow company, let the seller pick the closing date and other small concessions may tip the scales in your favor.
4. Write a personal note to the seller and tell them why their home would be the best fit for you. Many cash buyers are investors, so telling the seller how their home would have an impact on your life can help sway their decision.
5. Don’t weaken your offer by including any unnecessary terms, conditions or contingencies. While buyers in markets with an abundance of inventory might have the flexibility to include contingencies about repairs or updates the homeowner must make, sellers with multiple offers are likely to reject such terms.
Buyers who are in markets without many cash buyers typically don’t have to try as hard to stand out among the competition.
However, you can still boost your offer by:
1. Save up a substantial down payment (20+ percent) and get pre-approved. The extra cash and pre-approved status will indicate that you are serious about your home purchase and well-qualified.
2. Stay on top of new listings and submit bids as soon as you’ve checked out the property. Sellers typically review offers in the order that they come in. Beat out other buyers by simply having all your ducks in a row and submitting an offer immediately on homes that interest you.
3. Make your offer straightforward and simple. If there are improvements you’d like made on the home, consider submitting a lower offer instead of adding a clause about repairs the homeowner needs to make. The less work involved on the seller’s end, the more likely they are to unload the home to you.
There are many steps buyers can proactively take to improve their chances of landing their dream home. So, take the time to understand who else may be shopping in your market to help you create a more competitive offer.