Do you know why cash offers are preferred over financed ones? Buyers know that sellers prefer cash offers. Why are sellers more likely to accept them?
This article will examine the advantages of accepting offers that are higher in cash and why you should give preference to those offers. The vast majority of offers will require a loan. There’s nothing wrong about that. But from the seller’s point of view, more cash is better.
What is an offer for cash?
Let’s first define what a cash offers is. It’s not like someone walking into your home with a briefcase of cash to make you an offer that you can’t turn down. It’s not that dramatic.
Who is making cash offers?
Cash offers are only possible if you have a large amount of liquid cash. It is therefore no surprise that the most likely cash offer candidates are real estate investors.
Cash buyers tend to be concentrated on the extremes of housing markets. At the lower end of the market, investors and firms purchase homes that are in bad condition for cash. This allows them to avoid making monthly payments as they renovate the property. On the other end of the spectrum, wealthy people who have made a lot of money in the sale of their home or inherited an enormous fortune would prefer to buy homes with cash rather than deal with the banks.
Cash is the preferred payment method for many homebuyers today. Cash offers can be used as leverage to win bidding wars because housing inventory is limited and buyer demand high. If not a cash offer, offer to pay more upfront if you can’t.
Investors and regular buyers’ cash offers may differ in certain key ways. Investors may not want to wait for contingencies because they don’t intend to live there. The place will be fixed up regardless. The same waivers may not be offered to a regular home buyer who plans to reside in the house. They may even insist that the seller perform certain upgrades at their expense as a condition for accepting a cash offer.
It is important to make this distinction when weighing up the pros and cons of cash offers.
Benefits of a finance offer over an offer in cash
We would be remiss to not mention the advantages of financing offers. Cash offers are not always the best option. It all depends on your situation.
Consider your timeline
Cash offers are often preferred by many people because they can be closed more quickly. It’s not in the seller’s best interest to do so. If you still need to find a new home or extra time to pack up your belongings, this may be the best option. You have more time to decide what to do next when you accept a financed deal. The buyer’s lender will follow its checklist.
Get more money
In a study by the University of California San Diego, it was found that between 1980 and 2017, sellers accepted offers for cash that were, in average, 12 percent lower than financing offers. It’s a huge difference! Cash offers are often based on convenience and flexibility, but this can be at a price.
You usually deal with ordinary people
You want your next family to enjoy living in your home. Some cash buyers for real estate are only interested in the money they can get from a property and not its value.
You can choose who you want to sell your home to. The majority of buyers who use financing are people who want to live in the home. Cash buyers may be eager and pushy to close the deal, while financed purchasers might be picky because they are buying a home.
This is again a situational issue — you may not get along with anyone who makes you an offer!
Cash offer has many advantages over a finance offer
A cash offer does not mean that you will get a kiddie-pool full of money to play in. If you don’t own your house outright, the majority of this money will go to your bank to pay your mortgage. A large chunk of the money will be used to purchase a new house. The “kiddie pools full of cash” benefit is and not.
But there are also other benefits.
Faster processing
Accepting a cash buyer has many benefits. Even preapproved buyers must still get an official approval for a mortgage, and then undergo underwriting. This process can take 60 days. Cash transactions can take as little time as two weeks. You can sell your home quickly because there are fewer obstacles and you spend less time at the negotiation table.
Confidence is key to a successful deal
You won’t need to worry about inspections or appraisals if you accept a cash offer. Lenders will do everything they can to protect their investment. You won’t need to worry about money when you have a verified buyer. This gives you more confidence that your deal will be completed on time.
Fewer contingencies
Cash buyers will often waive contingencies. The lenders want to ensure that a buyer is able to afford a house and pays what it’s worth. Remember that each situation is different. Some cash buyers for real estate will keep contingencies in order to protect their investment.
A home appraisal may also cause sellers stress, as it could reveal that their home isn’t really worth what they thought. A appraiser’s report that does not match the sale price can kill a deal or force you to reduce your price. Cash buyers will waive this process so you don’t need to worry about how much your house is “really” worth.
Less stress
Selling to a cash purchaser may reduce stress. Cleaning, staging, repairs, and upgrades are required to sell your home the traditional way. It may be necessary to hire an agent and maintain your home’s cleanliness during open houses and showings. This can be an expensive and stressful process.
Cash buyers are usually looking to make a quick sale. If they see your house as an investment, you won’t have to worry about any of the stressful things.
Saving money
Cash buyers offer less than traditional purchasers, but by agreeing to purchase a house as is, you may be able to save some money.
The inspection can reveal needed repairs in a traditional sale. In most cases, the seller of the house must either pay for repairs or reduce their asking price. Cash buyers don’t care much about this. These costs are already included in their offer.
Real estate agents also tend to charge up to 6% commission on the sale of your house. You can avoid paying the commission fee if you sell your home to a cash-only buyer.
Reduced paperwork
Cash sales also require less paperwork. Cash buyers who are reputable will often handle closing and paperwork for you. Cash buyers often waive contingencies so you don’t need to look at additional reports.
Before you let an investor handle the paperwork, you should do your research and have an attorney review it.
Should you accept an offer of cash?
In the end, you are the only one who can decide whether you accept an offer of cash. Each situation and each offer is different. You will need to decide what’s most important to your home selling process and evaluate the strength of every offer.
You can expect to see a lot of offers in a hot market. You can wait patiently for the best offer when demand is high. You now know that a cash-only offer is better than a financing one.
