Accepting a cash offer can be advantageous as it often leads to a quicker, more straightforward sale with fewer contingencies and no financing issues. Cash offers typically close faster and reduce the risk of deals falling through. However, cash buyers might offer less than those using financing.
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.
Cash offers are appealing to sellers because they eliminate financing uncertainties and potential delays inherent in mortgage approvals. Cash transactions typically close faster and with fewer complications, reducing the risk of the deal falling through.
In addition, a cash buyer must show proof of funds, or the deal can crumble. “For sellers, the biggest risk is the buyer not having enough funds to purchase the property,” Kelly says.
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.
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."
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.
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.
Builders, like BOLD Construction, highly value cash buyers because they provide immediate funds for the project, significantly reducing the builder's risk. This newfound trust often leads to more flexible pricing and additional perks.
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.
Appraisal: With a cash offer, there's typically no lender requiring a formal home appraisal, which expedites the closing process. However, some cash buyers may still choose to conduct an appraisal for their own peace of mind, or to assess the property's fair market value.
It is a challenge, but there are many ways to compete with a cash offer. Make it easy for the seller to accept your offer by getting creative; consider paying for a seller's closing costs, using a cash lender, adding an escalation clause, and communicating well with the seller's agent.
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.
Bottom line. If you can afford to, buying a home with cash can make your offer more appealing to sellers and speed up the closing process once your offer is accepted. And avoiding a mortgage means saving plenty of money in closing costs and interest over time. Plus, you'll immediately own your home free-and-clear.
Once the offer is accepted, the buyer deposits the agreed-upon amount in an escrow account. Real estate agents typically coordinate the transfer of funds.
Less paperwork and bureaucracy: Cutting out the lender also means cutting out much of the paperwork and hassles associated with a traditionally financed sale. Less risky: Without financing or a lender-required appraisal contingency, an all-cash transaction is less likely to fall through — cash is more of a sure bet.
Here are the elements that make up a very strong offer: Highest offer of all buyers. Offers short contingency periods. All-cash buyer. Down payment of at least 20% of the purchase price.
Reduced profit: One of the top reasons to avoid selling your home for cash is that you'll likely get less money for it. “You usually get slightly lower offers, because buyers are aware that a cash transaction is easier,” Horan says.
Earnest money is a cash offer to the seller, a kind of deposit, to demonstrate that you can save money and are serious about buying that house. Let's say you're looking at a $185,000 house but know that the seller is getting other offers. You can offer to pay $3,000 in earnest money.
Paying all cash for a home can make sense for some people and in some markets, but be sure that you also consider the potential downsides. The drawbacks include tying up too much investment capital in one asset class, losing the leverage provided by a mortgage, and sacrificing liquidity.
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.
Do I lose out on any tax benefits when I pay with cash? “Don't expect massive write-offs or to save lots in taxes if you purchase with cash,” Watson says. “Depending on if the home is being used as a primary residence or a rental property, [some of] the closing costs may or may not be deductible.