The elusive cash offer. It’s the real estate dream. When a realtor hears they have a cash offer on a house, they know they’ve landed a slam dunk deal. But why? Why does it matter whether your home sells for cash or is a financed sale? Ultimately, as the seller, you will walk away with a check for the equity you have worked hard to build, so what is the big deal about cash offers?
The big deal is that cash offers are reliable. They move fast. A cash offer has better odds of closing than a financed offer. People who buy houses for cash are motivated and committed to making it to the closing table.
When a bank lends money to a homebuyer, they go through an extensive process to ensure they are lending to a reliable person. It is a massive amount of money, after all. Because of the hundreds of thousands of dollars at stake, the bank will go through multiple steps to minimize the risk of lending to someone who will default on the loan. This includes vetting the borrower and assessing a home for significant problems.
Understanding Cash Offers
What is a Cash Offer?
A cash offer is when someone has the money in the bank to pay for your house without taking out a mortgage. They will make an offer on your home without involving a mortgage lender.
Are There Different Types of Cash Offers?
There are a few common ways that buyers come to the table with cash to buy a home. Sometimes, you will see an offer from someone who has saved enough money to pay for an entire house in cash. These buyers compete with everyone else to find a home that fits their budget. You can expect a full-price offer that will close quickly.
Another type of cash buyer is a real estate investor. Investors can come in many forms, but often, you see them looking to snatch up distressed properties. They will make a below-market offer on a home that needs work and then tackle necessary upgrades to prepare it for a traditional sale. These offers are lower but are great options for people with properties that need significant work before they hit the market.
What Are the Benefits of Selling to a Cash Buyer?
The main benefit of a cash offer is that it’s quick and straightforward. Cash offers can close much faster and are typically more reliable than a financed offer. Whether you are selling to someone who plans to make your home their own or to an investor, they are eliminating all of the red tape that comes with a mortgage. With fewer things that can go wrong along the way, you can generally depend on a cash offer closing as planned. Here are some additional benefits:
- There are no inspection requirements. Mortgage companies require an inspection of a home before closing. They want to identify potential problems before they lock a buyer into a mortgage.
- You can eliminate appraisals. Appraisals are another requirement of a mortgage company–Buyers paying more than a house is worth are at higher risk of foreclosure.
- It reduces closing costs. A loan comes with closing costs. A cash offer eliminates some of the fees accompanying a traditional mortgage closing.
Understanding a Financed Offer
What is a Financed Offer?
When a buyer plans to take out a mortgage, they will make an offer on your home using a pre-approval from their bank. This means that upon initial inspection, the bank believes this person is a good candidate for financing. Throughout the closing process, they will do their due diligence to minimize their risk of lending to a buyer who may default down the road.
This process is what makes a financed offer less reliable. While a vast majority of pre-approved loans will go through to closing, there is the risk that, during the process, the bank will deny funding for various reasons.
Are There Different Types of Financed Offers?
There are different loan products available to home buyers. Conventional loans are available and backed by banks. There are also government-backed loans that are available to specific demographics. FHA loans for first-time home buyers and VA loans for veterans are common government-backed loans.
Government-backed loans have unique advantages for the buyer but may require jumping through additional hoops to get to closing.
What Are the Benefits of Selling to a Financed Buyer?
You might get better offers. A unique advantage of choosing a financed buyer is that you may get a higher offer. For a large loan, a few thousand dollars is negligible to the monthly payment. This allows cash buyers to feel comfortable making higher offers or agreeing to cover closing costs. With a cash offer, a buyer can be working with a set amount of cash and can be more concerned about the bottom line. Because of this, you often see better offers from buyers who are taking out a mortgage.
Remember that a cash offer isn’t always better as you weigh your options. Every offer will come with a unique set of pros and cons. Pick the offer that works the best for you and enjoy knowing that you have sold your home!