I was recently in Virginia and received a voicemail from my good friend, Ashley Fusarelli, that goes something like this: “You said to ask you anything, so I am wondering what is the benefit of a cash offer for a house? I know someone who just recently received one and want to know whether that is a good thing or a bad thing?”
Pros
Fewer Contingencies – Most buyers need a mortgage, so built into those mortgages are certain contingencies like appraisals, interest rates & proof of income. Some loans (such as VA & FHA) require even more conditions are met before lending money. With a cash offer, these potential hurdles for the seller are neutralized. As long as the buyer can show “proof of funds”, the process is far more straightforward and less risky.
Shorter Time Frame – With fewer contingencies and tasks to accomplish, cash offers tend to close sooner than ones where lenders are involved. This saves the seller money in terms of mortgage payments (if any) and hassle of waiting weeks for settlement. Every day you wait for settlement is another day something can go wrong with the deal.
Waiving Inspections – Some cash buyers in a competitive market like the one we’re seeing in the Philadelphia area find that their cash offer is not enough to lure the seller so they might waive inspections altogether to make it even more attractive. Obviously, it purely depends on the home, but if a cash buyer has deep pockets, he might take the chance of simply buying it outright.
Cons:
Low Offers: Some cash buyers understand what I’ve outlined above and feel they can now leverage these benefits in the form of a lower offer. Sometimes it works, sometimes it doesn’t. In a competitive market, a seller might be willing to roll the dice on a buyer who needs financing if the offer is higher. If the seller feels their home will appraise for their asking price, they will sometimes take the higher price even if a lender is involved.
More Requests During Inspections: In the same vein as above, the buyer sometimes feels as though they can leverage the simplicity of their cash offer (shorter duration) to get the seller to make more repairs. Of course, it is up to the seller how much they’re going to repair prior to settlement, but keep your eye on the big picture too. It might be worth remembering the seller is already saving money on another mortgage payment they’d otherwise be paying with a buyer who needs to wait for financing.
Get Ready to Move: As mentioned above, some cash deals can close in a few weeks and that can be a challenge since if the seller’s not ready to move or haven’t found their next house, that can put a seller in a bind. Sellers often like the idea of getting their home sold really fast until they realize that they need to start boxing things up and find a place to live. Be careful what you wish for.
Ultimately, no offer is solely based on financing (or lack thereof) since there are other factors, but a cash offer will get almost any seller’s attention. After all, CASH IS KING!
I would be happy to showcase your question in my next installment. Go ahead…Ask me anything or leave a comment in the section below!
Seth Lejeune – 610.804.2104 – seth.lejeune@foxroach.com / Berkshire Hathaway – Fox & Roach
Seth is a licensed REALTOR and small business owner based in Philadelphia, Pennsylvania.
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