Should I Accept an All-Cash Offer for My House?

All-Cash Offer for My House

Simply put, an all-cash offer is an offer made by a potential homebuyer who has enough liquid cash to purchase the property without requiring additional financing. Many of today’s all-cash buyers are using record-high equity growth from their current homes to make an all-cash offer on their new homes.

The most important thing to understand about cash offers is that because they don’t require a mortgage, they are much simpler, faster, and less likely to fall through. They are attractive to sellers because they typically close faster due to fewer contingencies (appraisal or financing), and they have fewer complications because there is no underwriting.

Are cash offers common in residential real estate?

You’d think it’d be rare for anyone to have enough cash lying around to pay for a house outright. We’re talking hundreds of thousands of dollars for most Americans looking to buy a house. But in the current housing market, 28% of buyers are making all-cash home purchases, according to a recent report from the National Association of Realtors.

“Cash offers are very common in today’s market,” Saad says, adding that in  his Michigan market, “a little over 50% of the listings we deal with end up selling with cash terms.”

Real estate investors — who can be small-scale business owners or house-buying company conglomerates — are another reason why all-cash offers make up such a big chunk of the market.

Many investors can afford to offer you a reasonable all-cash price and still make a profit when they sell because they may get reduced rates on everything from home repairs to title company fees. And making all-cash offers benefits investors because they can close on home sales much faster, which decreases the time they need to reap a return on their investment.

When are cash offers used in real estate transactions?

When considering an all-cash offer on your home, keep in mind that there are multiple scenarios and types of cash buyers. Some are experienced investors who’ll have a system set to expedite an all-cash sale. Others may be one-time buyers who may expect traditional protections like an inspection or appraisal contingency — meaning the deal depends on a successful inspection or an appraisal determining an expected level of value.

Here are the types of buyers most likely to make an all-cash offer:

Home flippers: Experienced investors who regularly renovate and sell homes for profit, who are less likely to require contingencies.

Buy-and-hold rental investors: Experienced investors who purchase properties to convert to rentals, who are also less likely to require contingencies.

“We Buy Houses” groups: These house-buying companies have gained popularity in recent years, typically offering less than market value but providing remarkable speed to close a sale with no contingencies.

iBuyers: These tech-focused all-cash buyers are national online real estate companies that use algorithms to calculate an offer for your home. They typically pay more than “We Buy Houses” companies.

Wealthy buyers or retirees: Buyers with enough money to purchase a second home and/or dabble in real estate investment. Since these are often first-time all-cash buyers, they are more likely to ask for some contingencies.

Equity-rich homeowners: Homeowners who have converted equity to cash by selling their previous home. Again, these are typically first-time, all-cash buyers likely to request some contingencies.

Regardless of which type of buyer makes you an all-cash offer, you need to make sure that they have access to the cash to follow through. Flowers explains, “A legitimate cash buyer should have the ability to show you that they have the funds readily available or at the very least present a letter from a reputable cash lender that you can verify.”

Mortgage offers vs. cash offers: How are they different?

The main difference between these types of offers is the source of the funding to purchase the house. Cash offers indicate that the potential buyer has the funds available in a bank account or something equivalent to cover the entire purchase price. Mortgage offers indicate that the potential buyer requires a mortgage loan in order to cover the purchase price.

There are several important differences in the home sale transaction process depending on whether the buyer is paying with cash or seeking a mortgage.

Length of the transaction

Selling a house takes time. But to a large degree, how long it takes depends on the buyer’s source of financing. Mortgage transactions can take up to two to three months, while all cash transactions can be completed in as little as five to seven days.

Steps in the transaction process

There are many steps in the home-selling process. In a mortgage transaction, there are several additional steps needed for the lender to release the funds to the seller for the purchase of the home. These include requiring an extensive buyer application and underwriting process, a lender-initiated appraisal of the home’s value, and the addition of a due diligence period, appraisal and financing contingency in the contract.

In a cash transaction, there are significantly fewer steps to complete the transaction. There certainly won’t be any steps relating to a mortgage application or underwriting. And while many cash buyers will still want some time in due diligence to perform an inspection, many won’t require an appraisal.

Read More: Cash Offer in Real Estate

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