Are Cash Deals Really Better For Home Sellers?

Are you preparing to sell your home? Regardless of the listing price, in today’s market of strong sellers, you could end up with at least one cash offer. As of March 2021, 23% of home buyers (including real estate investors) were financing their purchases with cash, according to the National Association of Realtors. But are cash offers better for door-to-door sellers? It depends on the offer – and the seller.

If you’re looking to sell your home quickly or don’t want to face the unexpected, a cash offer may be ideal for you. But if you need more time to find a new home, or want to make sure you’re maximizing your profits, you might be better off with a mortgage buyer. It really comes down to the details of the offer, not just where the buyer gets their funds.

Who buys a house with cash?

Traditionally, cash buyers tend to concentrate on both ends of the housing market. At the bottom of the scale, you’ll see vacationers and investors buying homes that might not qualify for a mortgage due to condition, price, or both. At the high end, there will always be buyers who don’t need a mortgage. It could be because they have a lot of equity from a house sale, they received a gift or loan from a family member, or simply because of their wealth.

In today’s market, however, more and more average buyers are paying cash. With a tight housing stock and high buyer demand, paying cash is a tactic some buyers are using to win bidding wars.

“Sellers are absolutely in heaven,” says Edgardo Guerrero, real estate agent at Century 21 Affiliated in Chicago. “For each property, there are 10, 15 buyers.

If you receive a cash offer from a buyer who is more or less a regular, it may happen more easily than if you are working with a first-time cash buyer. Tasks like drafting a purchase contract and obtaining title insurance are not new to them.

Investors and iBuyers vs Home Buyers

The category of regular cash buyers includes real estate investors, pinball machines, and iBuyers. IBuyers are businesses that pay cash for homes, bid in days or even hours, and allow sellers to close in as little as two weeks. Although investors and pinball machines are looking for listings, you need to take the initiative when sell to an iBuyer.

These buyers generally do not plan to live in the home. They are likely to waive any possibility of inspectionbecause they expect repairs or upgrades to be made as part of their investment. Not requiring repairs is also a way for iBuyers to ensure swift transactions. However, because they hope to profit from the purchase of the home, investors may bid less than a buyer looking for a home.

Guerrero notes that since tax auctions and distressed property sales are on hold, real estate investors who would typically buy properties at auction “have to come into the open market to get houses.” This creates even more competition among home buyers, raising prices and causing non-investors to consider making a cash offer.

A home buyer who is buying a home with cash for the first time, whether as a primary or secondary residence, is more likely to consider living in the home. This type of buyer may request unforeseen events, such as a home inspection. Since they are already investing a lot of money in the home, they are less likely to want a property that will require major upgrades or repairs. A safe, solid, and move-in ready property is a likely expectation for this type of cash buyer.

Why a cash offer may be better than a funded offer

The prospect of a cash offer may make you dream of diving into a scrooge McDuck-style mass of cash, but remember – unless you own your home completely, a good chunk of that money will go towards pay off your mortgage. Still, there are many reasons why cash offers appeal to home sellers.

  • Confidence in the matter at hand. With money, the buyer has the money or not – if you’ve checked the proof of funds, you know you’ll be able to close. Although data from the National Association of Realtors suggests most sales close as expected – as of April 2021, only 5% of contracts have been terminated – some sellers want greater certainty. The same report shows that a delayed close is much more common, affecting 22% of trades in the previous three months.
  • Faster process. Even pre-approved homebuyers have to get real mortgage approval and then go through with underwriting. It may take 45-60 days. Closing a cash transaction can take as little as two weeks.
  • Less unforeseen events. Cash buyers tend to be less likely to request an appraisal, home inspection, or other contingencies.
  • Easier closure. Cash buyers should take it upon themselves to secure title and an escrow company, and have an experienced buyer’s agent (and possibly a real estate attorney) to ensure documents are complete and correct. Yet without a lender involved, there is much less to review and sign to close the deal.
  • No stress of appreciation. Lenders require a Evaluation before approving a mortgage, since it is the property that secures the loan. When home values ​​rise rapidly, appraisals based on comparable home sales don’t always keep pace, leaving a gap between what a buyer would be willing to pay and what a lender would be willing to finance. With a cash offer – and no appraisal – the home is worth what the buyer is willing to pay.

Why a funded deal can be better than cash

Considering all of this, you can assume that the cash offers are always a winner. But making an offer on a home isn’t all about financing. Some variables to consider:

  • What’s better for your timeline. If you’re in a rush to clear out a vacant home or move into a new one, a quick shutdown looks good. But if you try to buy by selling, you may want a little more time. Compare the proposed closing dates and timelines among the offers to see which one works best for you.
  • How much money you could give up. Two researchers at the Rady School of Management at the University of California at San Diego found that from 1980 to 2017, on average, sellers accepted cash offers 12% lower than funded offers. Even if you’re interested in a quick close, compare these conveniences to the money you might be leaving on the table.
  • What kind of buyers are you dealing with. All of the above “cash transactions are generally faster and easier” points are more likely to hold true if you are working with an experienced cash buyer. With a first-time cash buyer, you could still have some unforeseen events. If the buyer is not working with a real estate agent, it can also complicate the transaction. In this scenario, having a listing agent experienced with cash buyers can be a big plus.

Cash buyers can potentially be arrogant, assuming a cash offer is irresistible. “We had an investment property where the buyer exceeded the list price by $ 5,000 during the ‘coming up’, and they said that offer expires tomorrow night,” says Mike Ferrante, a Century 21 HomeStar agent at Cleveland.

He spoke to the vendors, who decided to wait rather than take the money. “In this case, there are now three offers, and one is considerably higher than what they offered,” says Ferrante.

Should you take an all-cash offer?

It’s probably pretty clear by now that everyone’s circumstances are different and you will need to decide what matters most to you. Whether you accept a cash offer or go for a funded offer, Guerrero and Ferrante agree that in a market where you can expect multiple offers, it makes sense to wait for the right one.

“Some people will say, ‘If I put it up for sale for 199 and we get an offer for 215 or 220, we’re just going to take it,’” Guerrero said. He encourages sellers to wait for the “highest and best” bids and take their time.

A recent listing of his products sold for $ 46,000 above the asking price of a cash buyer who arrived at “the eleventh hour” when there were already more than a dozen offers on the market. table. “If we had accepted an offer within 24 hours or even two or three days, we would never have received the offers that were coming in,” Guerrero says.

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Kate Wood writes for NerdWallet. Email: [email protected]

The article Are Cash Deals Really Better For Home Sellers? originally appeared on NerdWallet.

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