The gray area of simultaneous offers is just one reason why the real estate market can be hard to understand. That’s what makes all-cash offers so appealing to sellers. The transaction feels a bit less opaque when a buyer presents an all-cash offer, which reduces risk pretty considerably. When a buyer presents an all-cash offer, it means they have the funds available to them at that moment, and they don’t need to go through the mortgage approval process. Sellers can breathe a sigh of relief. The deal begins with an initial offer (or multiple offers). Because the process includes an inspection and appraisal value, every offer is likely going to be a bit different from the others. Once the seller compares the terms and conditions, they can accept one, which begins the closing process. Of the many steps involved, these are the only two that require the original agreement to be pushed back. But of course, there are plenty of potential barriers that could stop the whole deal in its tracks.
What is the All-Cash Process?
In real estate transactions, the all-cash process is exactly what it sounds like—the buyer pays the entire purchase price at once rather than financing the purchase price with a loan. This differs from traditional financing methods, which often include unique lending terms, potentially high-interest rates, and monthly payments. Some of the biggest advantages to the all-cash process are the negotiation terms. Oftentimes, sellers will accept a cash offer over a financed offer, which means a potential to pay less, among other benefits. What’s more, all-cash methods usually see a significant reduction in closing fees that are often around the $2,000 range, which includes, lender fees, appraisal fees, and paperwork processing fees. Thus, anyone considering an all-cash purchase (or purchase with funds from a consumer credit line) must carefully consider potential benefits and also the context of their overall financial strategy.
The Benefits of Accepting a Cash Offer
A key advantage of cash offers is that they speed up the real estate closing process significantly. The origin of this benefit? When buyers bring a cash offer to the table, they bypass the rigmarole of finding a mortgage lender (or being “approved” by the lender). That single step takes a lot of time. Meanwhile, the seller sits on the sidelines, waiting and hoping it all works out. So, removing that step means the buyer and seller can make the deal happen more quickly. The sellers can move forward with plans that can’t happen until the home is sold. It’s like a Swiss Army Knife hidden inside an anti-anxiety kit. This advantage applies to the buyer just as much to the seller. Contingencies are a huge frustration in the buyer-financing selling situation. Buyers naturally add contingencies (like “pending loan approval”) that permit them to get out of the deal. Yet, they want the seller to commit to the deal. But the seller can’t 100 percent commit because they don’t want to remove the home from the market for 30-90 days until the buyer knows whether he’ll even receive the loan. Buyers becoming automatically more attractive, due to offering all cash, keeps things (particularly when negotiating the price of the home) in the buyers’ favor.
Step-by-Step Breakdown of the All-Cash Process
For all cash offers, you must evaluate the terms. Examine the offer amount, contingencies, and the person’s buying power. The fewer contingencies an offer has the better. Also, consider why the person is buying in cash. This will help give you a full understanding of how serious they are. If it’s a company, expect lower exceptions for the price. They often get deals by buying in bulk. You may not see any difference in the actual terms of your contract. The process of dealing with someone should be a bit different. Know why the person is paying cash. Sometimes, it’s not because they’re a rich tycoon buying a new house every other week. Many of them are real estate investors. The strategy works very well in residential transactions because investors can capture more value through owner-occupied houses. Meanwhile, in commercial, investors are more willing to pay par-value for buildings. Buying a building for a low price does no good if your business plan requires you to have a tenant in the building. The inspection process will be the same as normal because it will examine the house for all systems. However, the house might be examined with less of an emphasis on just getting an investment from an investor. Hopefully, the house is in good condition! Closing will occur just as in any transaction. With Investors, everything has already been set, so title, deed, and escrow instructions will be immediately prepared. All you need to do is sign everything and then send it back! Just make sure you know all of the legalities of the contract before you send it. I recommend asking real estate professionals and others for advice.
Common Misconceptions About All-Cash Offers
Many sellers have heard the rumor, the tale, or the out-and-out myth that cash buyers offer less. That somehow, folding green stuff talks much louder all by itself, and it doesn’t have to compete with relative value. It travels to the beat of a different drum. It’s worth more, even when it’s less. The assumption is if a seller can realize actual cash in-hand from a solid buyer, that seller might be willing to serenely kick to the curb the buyers who still need to complete financing. The reason is certain advantages to the seller are realized when an offer for less is cash. All cash can usually close in a flash. That is its name to fame. No complications of last-minute loan drama. No waiting for the wire to hit escrow from the buyer’s lender. Most likely, there will be no contingencies either. From the selling point of view, few contingencies can be a good thing. Further, it’s also much harder for an offer containing a loan, as opposed to an all-cash offer, to be accepted by a seller. The seller knows that buyer cannot tie his shoes or comb his hair until that buyer hears from his lender whether it’s a go. That’s why, from a seller’s perspective, cash sings a mighty sweet ballad. It might be relevance to the extreme if a seller can actually accept a lesser cash offer instead of the higher offer containing a loan.
Tips for Sellers Considering Cash Offers
Doing the necessary due diligence to know whether your cash buyer is the real deal will play a vital role in how you proceed with the transaction. Be prepared to ask the buyer to see proof of funds. This might be a recent bank statement or a letter from their bank that’s like a prequalified letter you might see from another buyer—one who’s getting financed. This way, you not only know the buyer can perform and is serious about buying your home, but you also lessen the likelihood of an all-to-common hairy situation popping up. Have an agent on your side who has a lot of experience dealing with these types of sales. It could also really help to move things along, essentially streamlining the process. Knowing the best practices for dealing with these types of buyers, for example, must be learned over years and years and countless transactions. Cash buyers typically aren’t 9–5’ers either, so the more transactions your agent has under their belt, the better they’ll know how to deal with all sorts of different personalities. An agent with a lot of experience will also know what a good cash offer is vs. a low-ball cash offer and when to push back on their agent if the items found on the inspection report don’t match up with what was originally agreed upon. Many, many, many things can go wrong with cash home sales. Even though home sellers can typically count on these deals going through, there may be times when the buyer completely vanishes. Where they go, nobody knows… But again, it’s just part of the deal with trying to offload your home for cash and do so fast.
The all-cash process in real estate transactions can significantly benefit homeowners looking to sell. One primary advantage of cash offers is the speed of the transaction. With no need to wait for mortgage approvals and lengthy financing processes, you can close a deal much faster—a few days, in some cases. If you’re in a rush to move, this can save you from all the uncertainties associated with traditional financing. And, cash offers often come with fewer contingencies. This makes negotiating much easier, as the odds of the deal falling through are far, far lower. When a buyer comes knocking with cash in hand, they (very likely) actually have that cash ready to go. This fact alone can make the deal very appealing, especially if you have multiple offers on the table. Overall, if you are considering selling, make sure you do your due diligence and understand all the benefits of an all-cash offer. Talk to a trusted real estate professional, and have them walk you through your specific situation. You want to make as many smart moves as possible so you can be better off from your home sale.
Related posts:
- Understanding Cash Home Sale
- Guide to Selling your House for Cash
- Benefits of a Cash Offer
- How to Choose Reputable Cash Offer