As a homeowner trying to sell their home, you have much to worry about.
- Does my home need upgrades before it’s move-in ready?
- Can I afford to make these upgrades?
- How long can I wait to sell my home?
- How will I find a home while actively selling my home?
- How will I afford a home without selling my current home?
The list goes on and on. If any of the problems listed worry you, then consider accepting a cash offer on your home.
As a buyer, you may find sellers in similar situations, which can make a cash offer particularly attractive.
This article will discuss both scenarios.
What Is a Cash Offer?
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. Cash offers are often viewed more favorably by sellers because they typically involve fewer contingencies and can close faster than offers contingent on financing.
“Cash-offer” is a misnomer. At the end of the day, all offers are “cash offers.” What it really means is the offer is not subject to financing, which is one less way for the deal to fall apart.
Where do cash buyers get their money?
- They received a large inheritance from a deceased relative
- They sold their fully paid-off home they bought in California 30 years ago for an insane price and can buy anything with a roof in Middle America.
- They arranged their own financing in advance, for example, a buyer who has secured a HELOC on a previous property.
- They’re an investor who secures funding from wealthy individuals and puts that money into real estate properties.
- They cashed out of a retirement fund to secure housing for retirement.
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 the certainty and expedience it represents.
Cash is king, baby!
How Common Are Cash Offers?
A report from Redfin found that 1/3rd of U.S. homebuyers buy their home with cash. This is the highest number since 2014, as high mortgage rates drive down overall home sales more than all-cash sales. The likelihood of receiving an all-cash offer depends on where you live. For example, the Bay Area properties sold to the fewest number of cash buyers compared to other cities in the Redfin report.
From our experience, cash buyers are concentrated at both extremes of the housing market. On the low end, you have cash buyers who look for bargain properties. These properties are in dire need of repair, or the homeowner is in dire need of funds and wants to exit quickly.
Conversely, you have extremely wealthy buyers (individuals and entities) who can splash the cash on a property. If they want a property, the question isn’t, “Will they get it.” It’s simply, “How much money does the seller need to see to sell to me.”
Is My Home A “Cash Offer Only” Home?
Nothing is stopping a buyer from making an all-cash offer on a property. The question is, “Does my situation make an all-cash offer more attractive than other offers?” If you need to sell your house ASAP for reasons, then your home is a “cash-offer only” type of property.
If you’re in a seller’s market, you’re likely receiving bids above the asking price. In this situation, an all-cash offer of an equivalent price is what it may take to end a bidding war. Based on your sound analysis, if you think you’ll keep getting higher offers, don’t accept an all-cash offer just because.
Benefits To The Buyer
From the buyer’s perspective, an all-cash offer is more likely to be accepted.
More Likely To Be Accepted
Another 2021 analysis by Redfin found that cash offers are four times more likely to win a bidding war. And the previous data shows that they’re increasingly more common. In hot markets, homes sell like hotcakes, receiving dozens of offers within days.
Free From Debt
If you want to avoid debt, the biggest debt of them all is a mortgage. Some would say you wouldn’t borrow against your home to invest in stocks, so why do it the other way around? Of course, the difference is that stocks don’t put a roof over your head, but alas a solid point. If you have poor credit, you can skip the lender process with a cash offer.
Benefits To The Seller
Greater Level Of Certainty
Anything can happen between accepting an offer and cashing a nice fat check. If you’ve already lost a deal at the 11th hour or seen buyers lose interest for no apparent reason, a cash offer can be a reprieve.
Anything can happen during the loan process, from a buyer losing their job, deciding to buy a car or a sudden drop in credit. All of this can change their approval status for a loan. Only about 5% of deals are terminated. However, that number includes all deals, so evaluate your situation. If you’re in the New England area (specifically Mass and NY), things take forever.
Cash offers close more quickly than typical mortgage loan deals. While mortgage deals take weeks, if not months, cash offers can close in as little as 3-4 days.
Cash offers don’t require an appraisal since mortgage lenders are the ones who require them. They do this to ensure the home is worth what they’re loaning out. If not, the buyer has to make up the difference between their offer and the appraised value. If you’re in a seller’s market, you can get offers for above the appraisal. This can cause a deal to fall through if the buyer doesn’t have enough cash.
Why Is A Cash Offer Better
On closing day, all offers end up as cash offers. A cash offer isn’t always better, but if the circumstances align, both the seller and buyer can benefit.