A cash offer in real estate refers to an all-cash bid to purchase a property. Traditional homebuyers rely on a lender and mortgage financing to provide funds. An all-cash buyer has the funds readily available to complete the purchase. Sellers often view cash offers more favorably because they typically involve fewer contingencies and can close faster than offers contingent on financing.
You can stop reading here if that’s all you’re looking for. However, the rest of this blog will dive deeper into the world of cash offers. Read a few paragraphs, and you can walk away with valuable insights on real estate cash offers.
- A cash offer in real estate usually refers to an all-cash bid to purchase a property. More precisely, a cash offer means the buyer does not need to get a loan from a bank.
- Typically, a buyer gets financing from a bank or lender. In a cash offer, the buyer uses their cash savings or receives cash from
- By skipping the loan approval process, cash offers can close in weeks. Mortgage loans usually take 40-50 days to close.
What Is A Cash Offer (Continued)
“Cash-offer” is a bit of a misnomer. At the end of the day, all offers are “cash offers.” What it means is the offer is not subject to financing. If you sell your house for $500,000 to a buyer with financing, then $500,000 liquid cash will change hands. Whether it goes into your pockets, the bank to pay off the mortgage, or another stakeholder.
A cash offer isn’t official until the buyer can show proof of funds.
For a seller, a cash offer can mean a smoother transaction, fewer potential delays, and a higher likelihood of the sale closing successfully. Thus, even if the cash offer isn’t the highest bid, sellers might consider it more seriously due to its certainty and expedience.
What A Cash Offer Is NOT
In one of our blogs, selling a house as-is in Massachusetts, we discussed a few misconceptions about selling as-is. We hear these same misconceptions when discussing cash offers with buyers and sellers.
- No Inspection: A cash buyer may waive their right to an inspection, but that’s not the norm or expected. Buyers are entitled to—and should—conduct thorough inspections. Many cash buyers will buy a home “as-is.” This label simply communicates that the seller won’t undertake repairs or modifications based on those findings.
- No Contingencies: Cash buyers are not contingency-free buyers. Although you may avoid the financing contingency, the process will still involve an appraisal, inspection, and title search. All three activities can halt the buying process, even after signing a purchase agreement.
- No Negotiating: After the buyer performs an inspection, they may return to you and ask for a price reduction. Due to the As-Is clause, they know they can’t ask you to make any repairs.
Who Makes Cash Offers?
A few types of people can and can benefit from making a cash offer.
- People who received a large inheritance or trust fund and would rather pay cash than secure a mortgage.
- Someone who sold a home in an expensive market then used the cash to buy a much cheaper home in a less expensive market. Like selling the family mansion in Chicago to retire in the Ozarks. (Wait, isn’t there a TV show about that?)
- People who arranged their financing in advance. For example, a buyer who has secured a HELOC on a previous property. Another example is a real estate developer with a hard money lender or investor.
- Someone who cashed out of a retirement fund to secure housing to ride out their golden years.
Why Are Cash Offers Beneficial To A Home Seller?
Our company has made a living by making cash offers to homeowners. They accept our fair cash offer for one of two reasons.
- They need to sell their home quickly and don’t have time to wait the 40-50 days a traditional home sale takes. Many people secure employment in another state and want to move quickly. Others plan to live with a dying family member. Some inherited a house they don’t want because they live elsehwere.
- They are in a poor financial situation and need to get their equity out of their home ASAP. Again, they can’t wait 40-50 days for a traditional home sale. Many people are going through a divorce, some need to beat foreclosure proceedings, and others are drowning in debt.
The big three benefits that make cash offers better for some sellers:
- A greater level of certainty
- Faster closing windows
- No appraisal requirements
How Does A Cash Offer Change The Home Selling Process?
Cash offers close faster because they allow buyers to skip the financing process. It usually takes about three weeks to get final approval on a mortgage. After that, lots of handwaving adds extra days before you sit at the closing table.
The cash-sale process is shorter:
- Negotiating: Negotiating a cash offer for a house typically takes less time than a traditional home sale involving financing. Often, in cash-sale situations, both parties are motivated and agreeable.
- Verifying Proof Of Funds: When a buyer makes a cash offer, they must provide evidence of their ability to complete the purchase. This can be in bank statements, money market accounts, or other liquid assets. The seller or agent reviews this documentation to ensure the buyer has sufficient funds to cover the purchase price.
- Singing The Purchase Agreement: Once the seller agrees to the buyer’s offer, the buyer’s agent will create a purchase agreement.
- Secure Title & Escrow: The home is officially under contract once the buyer signs the purchase agreement. The immediate next step is to make an earnest money deposit. Inspection: If you’re selling a property sight unseen, the buyer may forgo any inspection contingencies. However, this is rarely the case with cash offers. Most cash buyers still want to inspect the property.
- Final Walkthrough: The day before closing, you and your agent will do a final walkthrough. You’re looking for the home to be move-in ready and the previous owners to be moved out.
- Closing: Since payment is entirely with cash, there would be no closing costs from a mortgage lender. Other closing costs will include inspection, title search, title insurance, and more.
We can aid sellers who need to sell their homes fast because we have experience buying hundreds of homes. As seasoned real estate investors, we can breeze through the process and know exactly what to look for.
Cash Offers On A House: The Bottom Line
Cash offers in real estate provide a unique solution for buyers and sellers. For sellers, they offer more certainty and a faster sale. Buyers can leverage cash offers to negotiate better terms, given their ability to close quickly and with fewer contingencies.
Whether you’re a first-time homebuyer, a seasoned investor, or a homeowner looking to sell quickly, understanding the ins and outs of cash offers can be a valuable asset in your real estate toolkit.