One thing that has been popping up more and more frequently in the recent strong seller’s market is receiving cash offers for residential resale homes. The numbers from March 2021 showed that 23% of homebuyers financed their purchases with a large amount of cash. But is a cash offer really a better offer for the home seller? The answer to this is it actually depends upon the specific offer and the details within it as well as the person selling the home.
If you are hoping to sell your home as quickly as possible for certain reasons and you were not wanting to deal with any negotiation or contingency, a cash offer could be a promising one for you as a seller. In some cases, however, a seller might need more time to find their next home and want to be able to maximize their leverage in the negotiation and selling process.
Who typically purchases a house with all cash?
Most of many cash buyers tend to be an investor or a home flipper. A person that intends to use the property for some sort of financial gain, but not to live in themselves. Though they are rarer there is also the occasional buyer that has saved up a large sum of money over time just wanting to live debt-free. And on an even more rare occasion, you may find someone that has just come into a large financial windfall in the form of an inheritance or winning the lottery.
Something to consider with a cash buyer or someone financing a house with mostly cash is that those who do so regularly will have a smoother process to work with as they have done it before.
Investors and Internet buyers versus home shoppers
Frequent and regular cash homebuyers include real estate investors home flippers and what is called an iBuyer or Internet buyer. IBuyers are a relatively new form of home investing and tend to be companies that pay all cash for a property, giving an offer after just a few days, and offering a closing date in as little as two weeks.
Frequent cash buyers are most often not going to include any contingency because they want to take possession of the home as soon as possible in order to fix it up and return it to the market for profit or rent it out. And since auctions on distressed properties are on pause in many markets right now, these buyers are more often purchasing everyday resale homes.
A home shopper that has a large sum of cash on hand however is probably looking to live in the home and will want to include some contingencies to ensure the home is in solid condition and is a good investment for them.
How a Cash Offer Can Benefit a Buyer
More confidence that the deal will go through: with a solid cash offer a buyer either has the money on hand or they do not. To make sure that they do, ask for verified proof of funds and this will give you the information on being able to close on the deal that you need. It is rare that a cash offer home sale falls through, though the numbers for April 2021 that show that 5% of cash contracts were terminated on home sales. This is still a very low number.
A much faster closing process: Even though a buyer with a preapproval letter has a higher chance of a mortgage loan being approved, they still have to go through the approval process after making an offer on a specific property. This process can take anywhere from 15 to 60 days. Depending upon the financial strength of the buyer and their history with the bank.
Fewer Contingencies: most often with contingencies, it is the lender that requires them, at least with the appraisal. With a cash offer these are not a requirement. There is no waiting for appointments and having to work your schedule around them and then waiting for official result reports.
When a Financed (Mortgaged) Offer is the Better Offer
The Opportunity for a More Relaxed Timeline: now this may seem like it’s not a benefit, but it really can be if you have yet to find a new property to move into, even if it is just to temporarily rent while you shop for a new home, you may find you need that extra time or even want to have the leverage that allows you to ask for a little bit more
A Chance to Receive a Higher Offer: On average those who accept a mortgaged home offer will receive a higher offer. Research has shown that sellers accepting all-cash offers receive about 12% less money on the sale of their home.
Possible More Patient and Personable Buyers: most cash transactions are made with a focus on business and a fast and somewhat “cold” transaction. Cash buyers that are frequently making cash purchases have a tendency to be more impatient and less negotiable with the sale as it is “just business” to them.
Should You Accept an All-Cash Offer
The answer to this really depends on your particular needs as a home seller and your preference in who will purchase your home and what they intend to use it for. It is also a good idea to take the advice of trusted real estate professionals including agents and lawyers that are working in your best interest to help you decipher what truly is the best offer to accept on your home.