WHAT IS A CASH OFFER?
Buyers looking to purchase a home with readily available funds may have unique leverage when it’s time to seal the deal.
Using a cash offer to purchase a home has long been a way to appeal to quick-moving sellers. Especially relevant in a busy seller’s market, here’s a bit more about what it means to approach a sale with a cash offer.
So, what is a cash offer?
In essence, making a cash offer means that someone would like to purchase a house entirely using readily available funds. In doing so, they will not be taking out a mortgage loan on the house and will own the property outright.
Using a cash offer doesn’t necessarily mean the buyer hands over a literal wad of cash (though that technically is an option). Rather, it likely means the person making the offer has the full amount of money on hand in a liquid bank account, which is typically a standard checking, savings or money market account.
Why would someone purchase a home with cash?
There are multiple potential benefits to purchasing a home with cash, many of which may be emphasized in a busy seller’s market when low inventory can increase competition among buyers.
Using a cash offer may bode well for a simplified sales process. Mortgage lenders are not involved, so closing on the home could be expedited in comparison to a traditional financed sale. Other aspects related to this could include fewer contingencies, like not necessarily needing an appraisal or being required to have a home inspection, though many buyers do still opt for an inspection to ensure safety and an appraisal to help ensure the value of the home they are purchasing.
One explanation for why sellers might be interested in a cash buyer is the perception that the process often moves more swiftly. Numerous factors contribute to a situation where a seller might need to move quickly and may favor a cash offer, but there are two common ones:
The first is that some sellers need to urgently relocate for work, school or have already purchased another home and are ready to move. The second common reason sellers may be interested in a cash offer is if the house for sale is a fixer-upper property – meaning it’s outdated, in need of a makeover or going to be torn down to build a whole new structure. If the seller is nervous that the property may not pass inspection, they might prefer a cash buyer who is planning on flipping the home and isn’t interested in the inspection process.
Buyers who have enough money readily available may make a cash offer as a way to stand out from other perspective buyers. In some scenarios, a lower cash offer may beat out a higher offer with a mortgage loan contingency due to its simplicity and a greater likelihood the deal will close.
There are also reasons why a cash offer may not be a great option for some buyers. First off, the buyer needs to have an enormous amount of liquid funds and a willingness to use them in this fashion rather than invested or saved in another form. This is why most buyers opt for a mortgage loan to pay off a house over time.
Additionally, paying in all-cash means that the buyer might not have much usable money on hand afterward for life’s regular expenses, upgrades to the house or emergencies.
As mentioned earlier, those selling fixer-upper or tear-down properties may be intrigued by cash buyers due to the potential of fewer contingencies or a quicker closing process, especially if they know an inspection could reveal issues.
It’s important to remember that each transaction is unique, making it necessary to have the experience and expertise of a real estate agent to help navigate the homebuying process.