Exactly what’s classified as a cash offer on a house? Amidst a world of credit cards and electronic currency, you may ask yourself this question. Essentially, a cash offer creates a direct line of negotiation between you and the buyer. Specifically, a buyer who comes in with a cash offer is not reliant on a mortgage to buy your home. Thus, neither of you is dependent on the approval of a third party. This can foster easy communication and increase the chance that the sale closes successfully. A cash offer can make selling your house a seamless process. Furthermore, a cash offer can make the process quick and free of excessive conditions. For example, some buyers can make a cash offer in as little as 24 hours.
Does a cash offer literally mean cash?
No, receiving a cash offer does not necessarily mean a buyer rolling up to your house with a briefcase full of cash. It does mean, however, that the individual has the money readily available. Of course, many of us can’t afford to buy a house with all of the money up-front. Thus, the majority rely on a mortgage from the bank to purchase a home. In 2018, it was estimated that approximately 78% of home buyers had mortgages. While mortgages give many of us the opportunity to get a home when we would otherwise be unable to, mortgages can also slow the selling/purchasing process down. This makes sense because the bank has its own financial interests to look after. Therefore, a buyer who needs a mortgage has to rely on the approval of the bank.
How is an offer based on a mortgage different?
- It generally takes anywhere from 30-60 days to sell your house to a buyer who needs a mortgage. On the other hand, a cash offer may allow you to close sales in 7-30 days.
- Mortgages require a bank’s approval, whereas a cash offer is dependent on the buyer’s liquid assets.
- Many mortgage lenders get a commission fee which may affect a buyer’s offer, whereas a cash offer only involves the buyer.
- The bank determines the eligibility of the buyer who needs a mortgage, a buyer making a cash offer has to prove their eligibility to you.
- The majority of buyers need a mortgage so cash offers may be few and far between.
- Mortgages generally have closing costs.
Are there downsides to a cash offer?
As with most things in life, a cash offer is not completely free of shortcomings. Fortunately, if you are the seller, these downfalls affect the buyer more than you. For example, a buyer has to consider if they want to put all their eggs in one basket. Should they pour a great deal of their savings into purchasing a home or should they set that money aside for future needs? If they invest a large amount of money into a home purchase and then later have a great financial need that they may struggle to meet. Lastly, more responsibility falls on the buyer to prove their eligibility for purchasing your home.
Luckily, as a seller, you have a lot less to worry about for cash offers. One major concern is making sure the individual can legitimately afford the offer they put on your house. Thus, you want to make sure everything checks out financially. In addition, since a cash offer is solely based on what the individual can afford right now, they may make an offer lower than those with a mortgage might.
Should I accept a cash offer?
Naturally, this decision is ultimately up to you.
One key component to consider is how quickly you want the process to be completed. A buyer who needs a mortgage will likely take much longer to close the deal than one who is making a cash offer. Furthermore, because the timeline is longer and a bank is involved, a buyer needing a mortgage may be more likely to have to back out.
A buyer who is making a cash offer may also back out, but it is less likely. This is because those making a cash offer need to do the research on the front end before making an offer. Those who require a mortgage may be less certain about what they can and cannot afford when you begin negotiations. Another factor to consider is that cash offers may be less. This, of course, is not a rule but a possibility. Some may be able to pay more because they do not have to worry about closing costs. As a seller, these are important to weigh as you decide if you want to accept a cash offer.
Who makes cash offers?
Individuals who have recently sold their own home at a profit may be able to make a cash offer on your home. While cash offers may be made by individuals looking for a permanent home, cash offers are frequently made by investors. Many have questions about what exactly an investor does and how their cash offers work. Investors generally are ready to buy your house as-is and with cash because they want to renovate and eventually resell. Thus, investors may be interested in your home if it is in need of repairs and updates that you are unable to complete. If you think your house might be a good candidate for an investor you can reach out to them too rather than waiting for them to come to you.
Overall, individuals making cash offers versus those who need a mortgage can both be great potential buyers, depending on your needs. Now it’s up to you to decide who is best for you. Happy house selling!