Sellers prefer cash offers—and they’re good for buyers, too
Credited by: BY ELIZABETH WEINTRAUB
The home-buying process can be slow and cumbersome, especially if you’re trying to buy in a hot market and competing with other buyers. An all-cash offer is one way to stand out and speed up the process.
While it’s true that all transactions lead to cash in the end, the realities of financing place obstacles between buyers. 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.
What Is an All-Cash Offer?
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.
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.
Why Sellers Like All-Cash Offers
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.
Lenders require homes to be appraised before the close of escrow. An appraised value less than the amount of a mortgage can spell contract cancellation if a seller doesn’t come down on price or a buyer doesn’t increase the down payment.1 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.2 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 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.4 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.5
The bottom line is this: An all-cash offer usually means a faster closing, which puts money into a seller’s pocket sooner.
Incentives for Buyers to Pay All Cash
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 who are 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.
There are benefits for buyers other than just negotiating strength. Paying for a home with cash means that you will have no mortgage payment to make each month, and the equity in the home provides a sense of security if financial emergencies arise. While market fluctuations can change the value of a home, owners without a mortgage still have 100% equity in whatever that market value is.
The Bottom Line
If you have the means to make an all-cash offer, it’s definitely something worth considering. With real estate markets favoring sellers for much of the past decade, anything buyers can do to stand out is a smart move. However, your decision ultimately depends on your broader financial plans and comfort with risk.
