Mar 16, 2021

Cash Offers in Real Estate

We often hear that cash is king is real estate. A cash offer is more appealing to a seller than an offer contingent on the buyer financing the purchase. How much a cash offer appeals to a seller is debatable. Some buyers think it entitles them to offer less for a property. Let’s get to the heart of that conversation.

Why a Cash Offer Appeals to a Seller

When a homebuyer is financing a purchase, the sale is typically contingent on the buyer obtaining loan approval for that financing. That means if the buyer can’t get their financing, they can’t buy the property. The approval process can take days or weeks.

Additionally, the property must meet lender’s requirements for the loan. Those requirements involve the appraisal, insurability of the property and any lender required repairs. Depending on the terms of that specific contract, the buyer may be able to get out of the contract if the property doesn’t meet lender terms or if the buyer can’t qualify for their loan.

While all that is going on, the seller is in limbo waiting for the loan approval. A cash offer can typically close quicker than a purchase involving a lender. But that really depends on the lender and how ‘clean’ the title may be. 

The buyer’s financing typically makes little or no difference in the seller’s closing costs unless it involves a VA or FHA insured loan. For that reason, sellers often don’t care where the money is coming from, as long as the buyer can get their loan approved in a reasonable amount of time. For many sellers, a low cash offer doesn’t sweep them off their feet.

How Much a Cash Purchase Saves The Buyer

Paying cash for the property can save the buyer on closing costs. Of course, we’re not talking about actual cold, hard cash – as in paying for a property with $100 bills. The U.S. government doesn’t allow that to discourage illegal activities like money laundering.

But a purchase without a mortgage can save on various title and lender fees. Assorted lender fees include the application, processing, credit report, appraisal, flood certificate, doc prep, etc. Borrowers may also opt to pay points (a percentage of the loan) up front to secure a lower interest rate on their mortgage. That adds to their costs to purchase the property.

If buying with cash, the buyer also saves on the cost of recording the lien with the county court. Most lenders require additional endorsements to the title insurance policy to cover items such as restrictions, lease holds, taxes, etc. Those endorsements can add more than $100 to the closing costs.

Obviously, some purchasers finance their property because they don’t have the cash. Others may have the cash assets and don’t want to tie up their money in a non-liquid investment like real estate.

Regardless of the source of the funds, the money passes hands through the title company. In the end, the seller looks for their money from the title company. At that point, it’s all the same color of green.
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