What Are the Benefits of Paying Cash for a Home?
Why Sellers Like All-Cash Offers
Is it true that cash is king? Many people believe that a seller might give a break on the price of a home that is up for sale if a buyer pays cash.
Depending on the temperature of the marketplace, paying cash has its benefits from a seller's point of view. Now, some experts might argue that it's always cash in the end, and it is. But getting to the "end" prevents some buyers who are using financing from getting there.
Reasons Why Sellers Like All-Cash Offers
Sellers will often accept an all-cash purchase offer over a higher-priced offer with conventional or FHA loan financing. That's because they know the cash offer is more likely to close. It involves fewer stumbling blocks, and sometimes a bird in the hand is worth two in the bush, so to speak.
Just make sure when submitting an offer that you send along proof of funds with the offer. It's one thing to say you have the cash to close and quite another to provide proof. It makes your offer much stronger.
- No Appraisal Contingency: Appraisals are like... no, I'm not going to repeat that colloquialism, but everybody has an opinion. Appraisals are not cast in gold. The most common method is reliance on comparable sales, known as the comparative method, which involves choosing three to six properties and comparing those values to the property in question, adjusting upward or downward for updates/missing features. If a home does not appraise for the purchase price and the buyer is obtaining a loan that requires a 20 percent down payment or less, the lender will not lend unless the buyer coughs up more cash or the seller discounts the price. There are other options for dealing with a low appraisal, but they can also spell contract cancellation.
- No Loan Funding Contingency: Even though a buyer may be fully qualified to buy a home at inception, a hundred things can come up during the loan process. Apart from the home itself not qualifying, to conditions for loan approval that a buyer cannot meet, to loans that were once available drying up during escrow. More commonly, lenders deny loans because the buyers' qualifications change upon further scrutiny. Maybe the buyer wasn't fully employed in the same occupation for the past two years. Or perhaps financial situations were altered prior to closing such as the buyer purchasing a new car or worse: Maybe the buyer was unwittingly a victim of identity theft.
- Faster Closing: A buyer does not need 30 or 45 days to close if the buyer is not obtaining a loan. Once the home inspection and other contingencies have been satisfied or released, closing can take place in as little as seven days, provided that the buyer is willing to sign a lead paint waiver. A faster closing puts money into the seller's pocket sooner. There are also fewer things that can go wrong in a short escrow period.
Incentives for Buyers to Pay Cash for a Home
When REO lenders have a lot of foreclosures in their portfolios, sometimes the lender will discount the list price of the home in the hopes that the property will attract multiple offers. Buyers who pay cash for REO homes tend to win multiple offer situations.
But there are other benefits for buyers over price alone:
At the time of the initial publish of this story, Elizabeth Weintraub, CalBRE #00697006, was a Broker-Associate at Lyon Real Estate in Sacramento, California.