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You’ve heard that cash offers on a house are more desirable than financed ones but do you really know why that is? For buyers, it’s obvious: Sellers prefer cash offers. But why do sellers prefer them?
In this piece, we’ll examine the benefits of accepting cash offers for sellers and why it makes sense to give priority to higher cash offers when weighing your decision on which offer to accept. Remember, the vast majority of offers require a loan and there’s nothing wrong with that, but from a seller’s perspective, more cash means fewer problems.
What is a cash offer?
First off, let’s define a cash offer. No, it’s not as dramatic as somebody walking into your house with a briefcase full of cash and making you an offer you can’t refuse. (At least, not usually.)
A cash offer is one in which the buyer offers to pay for the entire cost of the house without using financing. Believe it or not, cash sales accounted for up to 24% of single-family and condo sales across the US in the past two years.
So, as a seller, receiving a cash offer isn’t a pipe dream. We wouldn’t say it’s common but it’s not uncommon, especially considering how hot most housing markets are right now and how many people are selling their homes for a profit.
Who makes cash offers?
Cash offers require a lot of liquid cash, so it may not surprise you that real estate investors are the most likely candidates to make cash offers.
Generally speaking, cash buyers are concentrated at the extremes of the housing market. On the low end, investors and house flippers purchase homes in poor condition with cash to avoid monthly payments while they fix up the property. At the high end, very rich people (or those who made a large profit in a home sale or inherited a fortune) would rather buy houses with cash to avoid dealing with the bank.
That said, more of your average home buyers are paying with cash today. Since housing inventory is tight and buyer demand remains high, buyers can use cash offers as leverage in bidding wars. Or, if not, a full cash offer, at least offer more money upfront to reduce the amount of a mortgage loan.
Cash offers from investors and regular buyers may differ in some key ways, however. Since investors likely don’t plan to live in the home, they may waive contingencies to make the deal as fast as possible. They’re going to fix the place up anyway. A regular home buyer who will live in the house, may not offer the same waivers. In fact, they may insist a seller make certain upgrades on their own dime as a condition of the cash offer.
This is an important distinction to note when weighing the benefits of cash offers.
Benefits of a financed offer over a cash offer
While this piece is about the benefits of selling your house for a cash offer, we’d be remiss if we didn’t highlight a few of the perks of financed offers. Cash offers don’t always win, it just depends on the situation.
Consider your timeline
Many people prefer cash offers because they tend to come with a quicker closing process. That’s not always in your best interest as a seller, however. You still have to find another house or you may need some extra time to move your things out. When you accept a financed offer, the buyer’s lender has its own checklist to pursue, giving you some more time to figure out what’s next.
You might get more money
A University of California San Diego study found that from 1980 to 2017, sellers accepted cash offers that were, on average, 12% lower than financed offers. That’s a big difference! Cash offers tend to prioritize flexibility and convenience, but that can come at a very literal price.
You’re usually dealing with normal people
If you love your home, you want the next family who lives in it to love it too. Some cash buyers don’t really care about the property, they care about how much money they can make off of it.
Of course, it’s always nice to get the most money you can, but you have some choice over who you sell to. Most of the time, buyers using financing are regular people who truly want to live in your home. Cash buyers could be pushy and eager to get a deal done, while financed buyers might be picky but it’s because this property is going to be their home.
Again, this is a situational thing — you might find you don’t get along with anybody who makes an offer!
Benefits of a cash offer over a financed offer
Remember, a cash offer doesn’t mean you’ll get a kiddie pool full of cash to roll around in. Unless you own your home outright, most of that money is going to the bank to pay off your mortgage. Another chunk will go to buying a new home. So, “kiddie pool full of cash” is not a benefit of cash offer over a financed offer.
There are a number of other benefits, though.
The number one benefit of accepting a cash buyer is speed. Even preapproved home buyers still have to get an official mortgage approval, then go through underwriting, in a process that can take up to 60 days. Cash transactions, on the other hand, could take as little as two weeks. There are far fewer hurdles and less time spent at the negotiation table, allowing you to sell your house fast.
Confidence in the deal
According to the National Association of Realtors, just 5% of sales were terminated in the last three months as of October 2021. That’s not very common, but the same report shows that 24% of settlements were delayed, with 21% of those reporting appraisal issues.
With a cash offer, you won’t have to worry about contingencies like inspection or appraisal killing the deal. Lenders want to protect their investment and they’ll do their due diligence. With a verified cash buyer, you won’t have to worry about the money, giving you greater confidence that the deal will go through on schedule.
Speaking of contingencies, cash buyers often waive them. It’s the lenders that want to make sure a buyer can afford a home and they’re paying what the home’s worth. Still, remember that every situation is unique — some cash buyers may keep the contingencies to protect their investment.
Additionally, a home appraisal can sometimes be a source of stress for sellers since it might find your home isn’t worth what you thought. An appraisal that doesn’t match the sale price could kill a deal and force you to lower your price. If a cash buyer waives this process, you won’t have to worry about what your home is “actually” worth.
Speaking of stress, selling to a cash buyer may reduce your stress. Selling the traditional way requires cleaning, staging, repairing, and upgrading your home. You might have to hire a real estate agent and keep your home clean through showings and open houses. It can be a time-consuming, expensive, and very stressful process.
Cash buyers usually want to move fast, and if they identify your home as a worthy investment, they won’t ask you to do any of that stressful stuff.
While cash buyers may offer less than traditional buyers, by waiving contingencies and agreeing to buy a home as-is, it may save you some money.
In a traditional sale, the inspection may surface needed repairs. Usually, the home seller must pay to fix those problems or lower their asking price. Cash buyers tend not to care about that. They’ve built those costs into their offer already.
Additionally, real estate agents tend to take up to 6% of your home’s sale price. If you find a cash buyer without an agent, you can save on that commission fee.
Finally, most cash sales require less paperwork. Many reputable cash buyers will handle the closing and paperwork process for you. And, since many cash buyers waive contingencies, you won’t have to review additional reports.
Of course, before you allow an investor to handle the paperwork, make sure you’ve done your research on them and consult an attorney to review it before signing.
Should you accept a cash offer?
Ultimately, only you can decide if you should accept a specific cash offer. Every situation and offer are different. You’ll need to weigh what is most important to you in the home-selling process and gauge the strength of each offer.
In a hot market, you should expect a number of offers. When demand is high, you can be patient and wait for the right offer to come along. Now, at least, you know the benefits of taking a cash offer over a financed one.