My Friend Made a Cash Offer on a Home and Still Lost Out for This Reason

She was only willing to pay so much.

There's a reason buyers have been so frustrated with today's housing market. Home prices are sky-high, and limited inventory has made it so that sellers get to entertain multiple offers -- offers that are commonly well above their asking prices.

Recently, a friend of mine tried giving herself an edge in a bidding war by offering to cover her home purchase in cash. But she lost out on the house in question for one big reason.

When a home just isn't worth the price

My friend decided to liquidate a portion of her investment portfolio earlier this year, before stock values really took a turn for the worse. She knew she was outgrowing her condo and wanted to upgrade to a small detached home. She also knew just how competitive today's housing market is. And so she specifically loaded herself with cash so she'd be in a position to forgo a mortgage and give herself an edge over other buyers.

Recently, she found a home that seemed to check off all the right boxes. It was close to her place of work, near a park she likes to jog in, and reasonably priced. But the latter didn't end up making a difference. 

While the home was listed for $400,000, once offers started coming in, her real estate agent informed her that buyers were bidding over $450,000. That was out of my friend's price range and comfort zone. She wasn't able to go above $420,000 for the home, so she lost out on it. 

But it's not just that she wasn't comfortable offering more than $420,000. She also knew the home really wasn't worth more. A few years ago, that same home likely would've sold for $350,000, she told me. 

Now the $400,000 price point may have looked reasonable given the circumstances of today's housing market. But my friend insisted the home is in no way worth over $450,000 (and to be clear, her real estate agent agreed), and so she made the decision to back out.

What also didn't help was that the seller in question wasn't in a rush to close on the deal. And so in this case, a cash offer didn't give my friend too much of a leg up over the competition. 

A strategy that isn't guaranteed

Cash offers have been helping buyers navigate today's tight housing market. But the reality is that sometimes, even a cash offer won't be enough to sway a buyer -- not when there are competing buyers willing to really pay up.

My friend is disappointed that she lost out on the house in question, but she also knows she made the right call by pulling out when the price got too high. And that's a good lesson for buyers to take to heart. 

It's easy enough to fall in love with a home, but it's also important to be realistic about what it's worth. Overpaying for a home in any market is a move that could backfire -- especially when it means handing over a massive pile of cash and tying that money up in an asset that may have been sorely overpriced.