That depends on the offer — and the seller. If you're looking to sell your house fast or don't want to deal with contingencies, a cash offer may be ideal for you. But if you might need more time to find a new home or want to be sure you're maximizing your profits, you could be better off with a mortgaged buyer.
All cash is better because there's less risk
Twenty percent down is “good enough” if there are no other offers. If it's multiple offers, though, it's probably not sufficient for most sellers provided that the all cash offers are written with realistic pricing.
For home sellers, the advantages of a cash offer on a house outweigh the drawbacks. Access to hard cash, fewer contingencies, fast closing, and lesser fall-through risk are some of the benefits of a cash offer on a house.
Cash offers can be appealing, as they close more quickly and are less likely to fall through because there are no lenders involved. But it's important to do your due diligence when dealing with cash-homebuying operations.
To cut to the chase, it really depends. Cash offers can benefit sellers by ensuring quick closings and fewer contingencies. But, if maximizing profit is your goal, financed offers may be better. The best choice depends on the seller's priorities and specific circumstances.
If the buyer absolutely cannot come up with the cash to close, they may lose their deposit and the seller can put the home back on the market. Having insufficient funds at closing could cause the buyer to default on the purchase agreement.
The convenience and certainty of all-cash offers appeals to sellers so much so, that they pay on average 10 % less than mortgage buyers, according to a new study from the University of California San Diego Rady School of Management.
Yes, a cash offer can collapse if you cannot furnish sufficient proof of funds or come up with the money needed to close the deal. Or, the homebuyer can cancel the deal within the agreed-upon due diligence timeframe if they change their mind due to concerns over an inspection report or other issues with the house.
Some cash home buying companies will pay as little as 50% of the after-repair value (ARV) of your home, while others may offer up to 85%. Use the 70% ARV formula (estimated sales price x 70% - repair costs = max offer) to see what you might expect.
Competitive Advantage: Cash offers often come with a competitive edge. Buyers paying in cash are seen as more serious and committed, making their offers more attractive to sellers.
A bank or other financial institution has more cushion against risk and more flexibility in the terms of a loan. A private seller, on the other hand, has fewer assets, and the impact of a buyer default will be more extreme for them. Sellers are likely to require higher interest rates to mitigate this risk.
The share of home buyers paying all cash reached 33 percent through August this year, according to data from Redfin — one of the highest rates since the years following the Great Recession. “The demographics of buyers doing this is incredibly broad,” said Compass Realtor Megan Dwyer in Florida's Southeast coast.
The Problem with Cash Offers
The primary reason? Sellers are reluctant to accept offers that significantly undervalue their properties. Even with distressed properties, owners are often unwilling to sell for “pennies on the dollar.” "Even if their property is falling down, they still are not going to give it away."
Economic uncertainty, particularly surrounding mortgage rates, has made cash offers more appealing. With mortgage rates remaining high, many potential buyers relying on mortgages pulled back from the market, increasing the proportion of cash buyers.
Can a home seller change the price after a contract is signed? No. Typically, when a seller wants to back out of a contract, it's because the house appraised much higher than the offer and the seller wants a do-over. Unfortunately, at that point, you'd be legally obligated to go through with the under-contract buyer.
Cash is king for sellers
Without any mortgage underwriting risk, all cash sales allow transactions to close faster. Buyers making an all-cash offer on a $1.5 million home in Sherman Oaks can close a deal as quickly as their broker and escrow company can hash out all of the paperwork.
It is technically possible to close on a home in 30 days, or even less, particularly if you are paying all-cash rather than getting a mortgage or dealing with a homebuying company or iBuyer. But in general, according to data from ICE Mortgage Technology it takes about 44 days to close on a home.
The primary goal of a cash discount is not to stimulate purchases but rather to motivate customers to pay their bills faster. This tool is often used when the seller is experiencing a shortage of funds that threatens their business operations.
You can justify a higher price by emphasizing the features of your home, the local market demand, and any recent upgrades or renovations you've made. Even with cash buyers, there's room to negotiate, and they'll often expect you to push back a little.
If the seller isn't willing to pay your closing costs, there are a few options you can consider, including: Asking for a credit at closing: One option is to ask the seller for a credit at closing. This means that the seller agrees to contribute a certain amount of money towards your closing costs.
Depending on the type of loan, you may be able to roll some (or all) of your closing costs into your monthly mortgage payments. If you're a first-time home buyer, you may also be able to get costs like your down payment covered entirely, which can lower the amount due at closing.
Negotiate with the Seller
Some sellers are willing to pay for a portion of the closing costs or offer closing cost credits to the buyer. This helps make the home more attractive to buyers. Discuss this early on in the negotiation process to see if the seller can cover a portion of your closing costs.