As the market is offering many homes for a buyer to consider, cash buyers tend to think providing a cash offer will give them an advantage over other buyers. However, as a Seller, is taking a cash offer in your best interest? Is the cash buyer offering you the price of your home at market value? Are they asking for other incentives that could further impact the funds you would receive with a lender-financed buyer?
Some cash buyers do provide some advantages over a lender-financed buyer, but there could be some potential drawbacks to weigh in your decision.
Pros to Consider: Closing Quickly
Two of the advantages of a cash buyer is the closing can happen quicker if this works for you and the buyer and there is not a lender involved. Some lenders can close quickly but some need time to close. The timeframe, generally for lenders, is between 30 to 60 days while a cash buyer can sometimes close as quickly as 14 days as on average.
Possibility of No Need for Repairs
With lenders and insurance companies there can be requirements for certain repairs. Your inspection will help determine if there are needed repairs and the severity of the problems. If you are aware of material defects to the home (examples would be leaks in the roof, plumbing leaks, foundation issues, etc.) an “as-is” cash sale is likely your best option. While you must disclose any problems with the home, it’s up to the buyer to deal with them after the purchase is complete.
Some of the items that can impact a contract are not generally part of a cash offer.
When a lender is involved there will need to be an appraisal to confirm the home has the same or greater value than the agreed to selling price. Also, the lender will spend time confirming the buyer is qualified to purchase. One of the items you will want a potential buyer to provide as part of the offer is a pre-approval or pre-qualification from a reputable lender. You want the lender to have done initial due diligence prior to providing a pre-approval or pre-qualification. This does not mean something will not negatively impact the loan, but it helps. A lender that has done their initial due diligence will have confirmed some of the information about the potential buyer rather than just taking their word they can purchase a home.
Cons to Consider: The offer price has a probability of being lower than a traditional buyer who is using a lender.
The convenience and speed of a cash sale can be attractive but there are some potential trade-offs to consider. One of the trade-offs can be a lower purchase price. Cash offers are almost always lower than you would receive from the more traditional buyer. Investors who are planning on reselling the house are expecting to make a profit as well. However, once you look at your particular situation, which might include the potential of cost of repairs that need to be done or might be requested or need to sell quickly. Depending on the market there could be uncertainty of how long a home may remain on the market and if you are paying a mortgage that is a struggle or have two mortgages, the trade-off could make sense.
Transaction Risks
When selling your home for cash review the offer very carefully. Look at all the fine print. Unfortunately, some of the offers will be scams. Also, some of the cash offers have catches such as the buyer will make the monthly mortgage payments but the loan stays in your name. There are several risks with the loan remaining in your name. Two examples – if a payment is missed it is your credit that is damaged or if the buyer decides to walk away you will remain responsible for the mortgage. These kinds of offers are presented in several fashions with all kinds of guarantees but ultimately the mortgage remains in your name and you are ultimately responsible for paying if the buyer does not make the monthly payment. Very important with any cash offer you need proof the buyer has the funds to make the purchase. Ask to see a bank statement or a proof of funds letter from the bank before accepting the offer. Also, for your protection, never accept a personal check. Have the buyer wire funds for the escrow and the purchase to the Title Company that is handling the closing. The Title Company will be able to confirm they have the funds.
Cash offers can be the perfect answer for some sellers. Depending on their selling circumstances and the quality of the cash offers received. You will be able to determine if this is the best choice for you.
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