Understanding Cash Offers in Real Estate Sales

When real estate markets heavily favor home sales, the chances of getting cash offers on houses goes up dramatically. The reason why this happens is because cash is king. When multiple parties are bidding for the same home, cash offers are highly desirable. To become the winning bidder many buyers will empty their wallets by putting forth a cash offer.

Frankly, it can knock many traditional buyers getting a mortgage out of the picture, especially when the price offered for a home is relatively similar. With a cash offer, the buying and selling process is different than it would be with a mortgage financing.

The process of buying a home is generally faster with cash sales than with the traditional mortgage process. There's no mortgage application, documentation, or underwriting, and the buyer typically doesn't need an appraisal.

When buying an all-cash house it can take as little as two weeks to close. All of these differences can be attractive to a seller who is looking for a "sure thing."

One major difference between cash buyers and traditional home buyers is that the latter must prove their financial capability to the seller before moving forward.

When a buyer applies for a mortgage, the lender will typically pre-approve them based on their credit score, current debt, and income.

A cash sale does not have a safety net, which means the buyer will usually need to provide a proof of funds letter from their bank showing they have the funds available to go through with the transaction.

Advantages of cash offers:

Sellers have more confidence the sale will close

Closings can be completed quicker

There are no credit score worries

There is no chance a real estate appraisal can come in lower than the purchase price

You save money by not paying a bank interest every month.

There is far less paperwork and documentation required

Disadvantages of cash offers:

You give up a significant amount of cash.

Your liquidity will be lower and you'll tie up your wealth in a harder to move asset.

There won't be any mortgage-related tax deductions that come with financing a property.

There are many considerations to think about when making a cash offer on a home. Take a look at the excellent resource provided by Maximum Real Estate Exposure which showcases everything you need to know about cash sales.