What Is a Cash Offer on a House?
A cash offer on a house, also known as an all-cash offer, is an offer that is made entirely of cash and requires no financing. All cash offers are enticing for sellers as they can lead to faster closings and don't have the risk of falling through if the buyer's mortgage isn't approved. They’re also just called cash offers, for short.
Cash Offers Advantages
1. Stronger Negotiating Position
Cash offers are often more attractive to sellers because they eliminate the uncertainty associated with mortgage approval. Sellers may be willing to offer a discount for a quick and certain cash transaction. Even if they don't offer a discount, sellers will often prioritize a cash buyer over others.
2. Faster Closing Process
Without the need for mortgage underwriting, appraisals, and lender approvals, the closing process can be significantly faster. This can be particularly appealing to sellers who need to close quickly.
3. Less Risk of Deal Falling Through
Cash offers reduce the risk of financing contingencies, which can sometimes cause deals to fall apart.
4. Lower Closing Costs
Cash buyers can avoid certain closing costs associated with obtaining a mortgage, such as loan origination fees, mortgage insurance, and interest.
How To Make a Cash Offer On a House
Here’s what you need to do to buy a house for cash.
- Determine Your Budget
- Research the Property
- Make the Cash Offer
- Give the Seller an Earnest Money Deposit
- Conduct Due Diligence
- Set a Closing Date
1. Determine Your Budget
Before making the offer, make sure you have enough cash to cover the purchase price of the home, as well as closing costs and other fees. Assess your finances to determine how much you can comfortably spend on a house without compromising your financial stability.
2. Research the Property
Before making the cash offer, you'll need to research the property and the local market to determine a fair offer price. Consider working with a real estate agent to find properties that meet your criteria and are within your budget.
3. Make the Cash Offer
Work with your real estate agent to craft a competitive offer. Consider the seller’s needs and market conditions when deciding on your offer price and terms. Prepare the written offer that clearly states that you intend to pay in full with cash and submit it to the seller or the seller's agent.
4. Give the Seller an Earnest Money Deposit
If the seller accepts the offer, you'll typically give them an earnest money deposit. A substantial earnest money deposit can show the seller you are serious about the purchase.
5. Conduct Due Diligence
Perform a home inspection, title search, and any other necessary due diligence to ensure there are no hidden issues with the property.
6. Set a Closing Date
Once the seller’s legal team approves everything, you can choose the title company and set up a closing date. Be prepared to wire the money for closing or bring a cashier’s check for the purchase price.
How Do Cash Offers Differ From Regular Offers?
There are a couple of significant differences that make cash offers stand out from the rest. These include:
- Fewer contingencies: Since no lender is involved, there are no contingencies based on financing falling out or having to use an approved title home. This leads to a more streamlined offer.
- Faster approval: Not having to worry about finance approval also means you can expect the approval and transaction process to move smoothly.
- Easier closing: This turns into a simple cash transaction, rather than a three-way meeting with a loan officer.
Are Cash Offers Always a Good Deal?
Not always, though, they do have their perks. Because they are more convenient, most cash buyers tend to issue out offers that are lower than financed offers. If you’re given a cash offer from a potential buyer, it’s best to think about the price point before you agree.
It’s worth pointing out that there is an entire industry of investors and iBuyers who make a killing by offering cash for homes. The caveat is that they often buy the homes for a deep discount, which can put you at risk for having a financial loss. Still, it’s an option if you need the home off the market quickly.
Can You Buy a House For Cash?
If you have the cash, there’s no reason you can’t use it to buy a house. This is true, regardless if you’re a company or just an individual who’s looking to get a new home. Knowing how the cash buying process works is important, though!
How To Sell a House For Cash
Selling a house for cash is easier. All you have to do is accept the all-cash offer, set up the title company appointment, and have the transaction. Once that’s done, you will be able to get your cash and give away the keys.
Where Do You Find a Cash Buyer?
Around 15 to 20 percent of all real estate transactions involve an all-cash offer. In the real estate world, there tend to be four main groups of cash buyers, but they’re not always easy to find. The average cash buyer has likely bought multiple homes in the past and is often looking for a good deal. The most common types of cash buyer are:
- Investors: Both individual investors and real estate companies are known for offering up cash for properties they want. When you’re dealing with a business, they’re known as EPCs—Equity Purchasing Companies.
Since investors and EPCs tend to deal with distressed properties, they try to keep offers on the low end of things. On a similar tangent are iBuyer companies, who use internet financing to find investment properties to fix and flip.
- Retirees: Many retirees tend to buy homes using their retirement funds as a way to avoid mortgage loan costs.
- Previous Homeowners: Previous homeowners are often equipped with enough cash to buy a new place. They paid off their loans, and they’re just using the profit from their last home to finance their next place.
- Very Wealthy Individuals: Of course, the most obvious category of cash buyers is exceptionally wealthy people who just want to get a new summer home or don’t want to deal with the hassle of financing a home.
Another way to find a cash buyer is to simply sell to one of the many companies that buy houses for cash.
What Kind Of Homes Are More Likely To Be “Cash Only?”
Much like how there are homes that tend to be more likely to be financed, there are also homes that are more likely to be bought up using cash bids. Home types that are commonly sought by cash buyers include:
- Foreclosures and Short Sales: If you’ve had your eye on a foreclosed property, chances are that you’ve noticed that they require cash-only buyers. This is because many banks don’t want to deal with loans involving foreclosed homes, primarily due to the fact that people aren’t allowed to inspect them.
In many cases, banks are also averse to short sales for a similar reason. That being said, it is still possible to have a bank offer you financing for a short sale or foreclosure in the right circumstances.
- Distressed Properties: If your home is a fixer-upper, you might find investors who want to buy it in exchange for an all-cash bid. It’s the easiest way to make the sales process happen.
- Investment Properties: Much like distressed properties and foreclosures, upscale properties that people view as investment properties are more prone to getting a cash offer than others. Whether or not you want to accept it is up to you.
Why Do Some Homes Require A Cash Offer To Be Sold?
This can happen for a wide range of reasons. It could be a seller’s preference, but in many cases, it’s because the property in question would have a hard time getting approval from lenders. By asking for a cash offer on the table, the seller can circumvent the chances of having an otherwise great sale fall through.
Another reason why cash-only offers can be a requirement deals with the preferences of who moves in. If you’re getting a co-op for a cash offer, chances are that it is a mandatory requirement that was set forth by the co-op’s council. This is the committee’s way of ensuring that people who buy the co-op will be able to pay the maintenance fees required of them.
Are All-Cash Offers Risky To Make?
This all depends on what you’re trying to do and how you try to do it. In most cases, making a cash offer is the best way to get a good deal on a house you want and push through the paperwork. However, there is a risk here.
With financed offers, there’s a requirement to get your home appraised, and banks will be able to use their tech to ensure that you’re getting a reasonable price on the place. With all-cash offers, that requirement is off the table. This means that you have the option to skip an appraiser and that you don’t have a bank that will look out for your valuation’s needs.
At first, this probably sounds great. However, those protections are there to ensure that you’re going to pay a fair value for the home you’re in and not have to worry about additional costs. This means that there may be a slightly higher risk of ending up on the wrong side of the deal. To ensure you stay safe, it’s best to hire an appraiser to help you out.
How Long Does It Take To Close On a House When Paying Cash?
Since there’s no lender involved, you can expect to close on a house in as little as two weeks when you pay cash. This compares to a minimum of 30 days, and an average of approximately 45 days to close when getting financing, so if you’re a cash buyer, you’ll be able to step into your new home faster.
Do All-Cash Offers Still Need Closing Costs?
A common misconception is that cash buyers don’t need to pay closing costs. Sadly, this is not the case. Closing costs cover all the paperwork and filing that needs to be done for a home to be officially sold. As a result, cash buyers still need to cover closing costs.
Cash Offer On House Bottom Line
Making a cash offer on a house can be a powerful strategy in a competitive market, offering numerous benefits such as faster closing and stronger negotiating power. However, it also requires careful financial planning and due diligence to ensure the investment is sound. By understanding the advantages, considerations, and steps involved, you can make an informed decision and potentially secure a great deal on your next home.