Sellers naturally want to deal with buyers who face the fewest hurdles. All-cash offers are a great way to remove those obstacles, but they're not always the best choice. In most real estate transactions, buyers rely on the help of a lender to finance their purchase.
They may come to the table pre-approved and ready to make an offer, but their ability to close the deal will ultimately depend on the lender's assessment of their ability to pay back the loan, an appraisal of the home's value, and other factors. An all-cash offer takes the lender out of the picture completely. It means that the buyer has enough liquid assets available to write a check for the full purchase price of the home.
If you're a buyer in this situation, you're essentially saying that you can close the deal as quickly as possible. Depending on the temperature of a marketplace , paying cash for a home has benefits from a seller's point of view, strengthening your negotiating position if you can afford to pay with cash.
Some sellers choose all-cash purchase offers over higher-priced offers with conventional or FHA loan financing, because they know that a cash offer with proof of funds faces fewer stumbling blocks and is more likely to close. The most common method for appraisals involves looking at comparable sales. That involves choosing three to six properties and comparing those values to the that of property in question and adjusting upward or downward for updates or missing features.
The process can add a week or more to the sales process. Cash takes the lender—and the need for an appraisal—out of the equation. Even if you don't have to get an appraisal, it still may be worth the time and cost to ensure that you're not overpaying for the home. Even buyers who are fully qualified for a home loan can be tripped up by any of multiple contingencies. Buyers' qualifications can change upon further scrutiny.
Perhaps a buyer wasn't fully employed in the same occupation for the past two years, or financial situations changed prior to closing because the buyer bought a new car or was a victim of identity theft. If buyers have cash, no such potential problems can derail a sale. Cash sales also take less time. Buyers do not need 30 or 60 days to close if they are not obtaining a loan. Once a home inspection and other contingencies have been satisfied or released, the closing can take place in as little as seven days, provided that the buyer is willing to sign a lead paint waiver.
The bottom line is this: An all-cash offer usually means a faster closing, which puts money into a seller's pocket sooner.
Because of the reasons for sellers to prefer cash deals, it makes sense for buyers to want to pay with cash if they have the means—especially in a seller's market. Buyers willing to pay with cash have an inherent advantage over those who need to borrow, and they may even be able to win over the seller at a lower price. Lenders with multiple foreclosures in their portfolios sometimes discount the list prices in the hopes that properties will attract multiple offers.
Again, buyers who pay cash for these real estate owned REO homes tend to win multiple-offer situations. The category of regular cash buyers includes real estate investors, house flippers and iBuyers.
Though investors and flippers will seek out listings, you have to take the initiative when selling to an iBuyer. These buyers generally aren't planning to live in the home.
They're likely to waive an inspection contingency , because they expect to make repairs or upgrades as part of their investment. Not mandating repairs is also one way iBuyers ensure speedy transactions. Because they're hoping to profit from buying the house, however, investors may make a lower offer than a buyer who's looking for a place to live.
Guerrero notes that since tax auctions and sales of distressed properties are on pause, real estate investors who would usually pick up properties at auction "have to come to the open market to get homes.
A home buyer who's buying a house with cash for the first time, whether as a primary residence or a second home , is more likely planning to actually live in the house. This type of buyer may ask for contingencies, like a home inspection. Given that they're already putting out substantial cash on the house, they're less likely to want a property that will need significant upgrades or require major fixes.
A property that's safe, solid and move-in ready is a likely expectation for this type of cash buyer. The prospect of a cash offer may have you fantasizing about diving into a pool of money a la Scrooge McDuck, but remember — unless you outright own your home, a good chunk of those funds will be going toward repaying your mortgage. Still, there are plenty of reasons why cash offers appeal to home sellers. Confidence in the deal going through. With cash, the buyer either has the money or they don't — if you've verified the proof of funds, you know you'll be able to close.
Faster process. Even preapproved home buyers have to get an actual mortgage approval, then go through underwriting.
That can take 45 to 60 days. Closing a cash transaction can take as little as two weeks. Fewer contingencies. Cash buyers tend to be less likely to request an appraisal, a home inspection or other contingencies. Simpler closing. Cash buyers should take it upon themselves to get a title and escrow company, and have an experienced buyer's agent and possibly a real estate attorney to ensure paperwork is complete and correct.
Still, without a lender involved, there's much less to review and sign off on to close the deal. There are often lots of offers written before one gets accepted. If you can bring in a larger cash down payment, it will improve your odds tremendously.
Cash remains king! Prolific blogger with a network of sites. View all posts. In , my daughter and long term assistant, Clair Handy, got licensed and became a Realtor. We both contribute to the research and many articles on this blog.
More info on Clair will be forthcoming! Use this link to browse properties which are for sale, under contract pending or sold. Want to view only homes which are available now? This website uses cookies so that we can provide you with the best user experience possible.
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