What Is A Cash Offer On A House?

by | Jan 5, 2024

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.

Key Takeaways:

  • 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.

Pro Tip: Attend the inspection to ensure the inspector does a thorough job. It should last 2-3 hours. Tell the inspector your plans for the property (move-in ready vs. fixer-upper) and read the full report. 

Massachusetts-Specific Home Requirements

  • Title 5 Inspection: Massachusetts requires a Title 5 inspection for properties with private septic systems. This inspection ensures the septic system meets state environmental standards and must be done before selling a property, expanding its footprint, or building additional bedrooms.
  • Lead Paint Law: Massachusetts requires homes built before 1978 to be inspected for lead paint. If lead is found, it must be disclosed, and landlords must remove or cover lead paint hazards if a child under six resides in the property.
  • Smoke & Carbon Monoxide Detector: Before a property can be sold, it must pass an inspection to ensure compliance with Massachusetts’ smoke and carbon monoxide detector regulations. Certificates from local fire departments are required at closing.
  • Transfer Tax (Stamp Tax): Massachusetts imposes a real estate transfer tax on property sales, commonly known as a stamp tax. The tax rate is $2.28 per $500 of the purchase price, paid by the seller at closing.

Step 8: Homeowners Insurance

Homeowners insurance is mandatory if you have a mortgage and must be in place before closing. This insurance covers various risks, including damage from fire, theft, and natural disasters, as well as liability for accidents on your property.

Standard policies often include dwelling coverage, personal property coverage, liability protection, and additional living expenses if your home becomes uninhabitable.

There are different levels of coverage, such as:

  • HO-1: Basic policy covering specific perils.
  • HO-2: Broad policy covering more perils than HO-1.
  • HO-3: Special policy that covers all perils except those explicitly excluded.
  • HO-5: Comprehensive policy offering the most extensive coverage.
  • HO-6: Condo insurance.
  • HO-7: Mobile home insurance.
  • HO-8: Older home insurance.

By comparing different policies and providers, you can ensure you get the best protection for your new home.

Step 9: Closing And Walkthrough

The final walk-through typically occurs on the closing day to ensure the property is in the agreed-upon condition. During this inspection, confirm that all personal items have been removed unless specified otherwise in the contract, and check for any new damages. Conduct the walk-through during daylight hours for better visibility. 

Be thorough:

  • Flip all switches
  • Turn on faucets to check for leaks
  • Run all appliances
  • Test the garage door opener
  • Open and close all doors
  • Flush toilets
  • Run the garbage disposal and exhaust fans
  • Inspect ceilings, walls, and floors.
  • Test the heating and air conditioning systems.

At The Closing Table

You will review your Closing Disclosure form at closing, which you should receive three business days before closing. Compare it with your Loan Estimate to check for major changes or inconsistencies. Some fees are legally restricted from increasing by more than 10%.

Consider having a real estate attorney review these documents if desired.

On closing day, meet at the title company. Being on time is crucial, as appointments are often scheduled back-to-back. Bring your photo ID, a cashier’s check (if required), Closing Disclosure, and any other requested documents. 

During the closing, you will sign several key documents:

  • Closing Disclosure: Details all the costs and fees associated with your mortgage, received at least three business days before closing for review and comparison with your Loan Estimate.
  • Promissory Note: A legal document where you agree to repay the loan amount over a specified period, including the interest rate and payment schedule; your promise to pay back the loan.
  • Mortgage (or Deed of Trust): Secures the promissory note and gives the lender a claim against your home if you default on the loan; outlines the mortgage terms, including the loan amount, interest rate, and repayment terms.
  • Deed: Transfers property ownership from the seller to you; includes a property description and is signed by the seller.
  • Settlement Statement (HUD-1 or ALTA): Provides a detailed list of all costs associated with the home’s sale, including buyer and seller costs; reviewed and signed by both parties.
  • Affidavits: Various affidavits may be required, such as confirming your identity, stating the property will be your primary residence, or ensuring no undisclosed liens or judgments.
  • Title Documents: Ensure you receive clear title to the property; may include documents related to title insurance, which protects you and the lender against potential legal issues with the property’s title.
  • Initial Escrow Disclosure: This document outlines the escrow account details, including the amount you need to deposit and what it will cover (e.g., property taxes and insurance).
  • Loan Application: Review and sign a final version of your loan application to confirm that all information is accurate and up to date.
  • IRS Form W-9: Used to provide your taxpayer identification number to the lender for reporting interest paid on the mortgage.
  • Homeowners Insurance Verification: Proof that you have secured homeowners insurance for the property, typically required by the lender.

Get One-on-One Guidance

Contact us below or call (978) 228-1068 to speak with us about selling your home fast.

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Elie Deglaoui - Author

Author

Elie Deglaoui

Elie is our office admin who handles all our day-to-day tasks and makes sure we always stay on track. He brings his love of music and sports into the office everyday to always liven up the environment. His outgoing personality makes it easy and fun for him to talk to homeowners, homebuyers, and everyone in between.

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