What is a Cash Offer on a House?
8 minute read
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July 22, 2022

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If you’re house hunting in the market today, chances are you’ve come across cash offers. 

A cash offer on a house is an offer to purchase a property in which the buyer pays for the property in full, in cash. 

This type of offer is becoming increasingly popular, as more and more buyers are looking for ways to speed up the home-buying process.

In this article, we’ll discuss what a cash offer on a house is, and why it has become such a popular choice among buyers.

What is a cash offer?

A cash offer is an all-cash bid, which means the buyer has the capital to obtain the property while foregoing a mortgage or other traditional forms of financing. 

Cash offers are enticing to home sellers as they usually mean a faster closing time and less risk of the seller falling through due to financial hardship.

The benefits of a cash offer

There are several benefits to making a cash offer on a house. 

One of the biggest advantages is that it can help you avoid many of the fees and delays associated with traditional mortgages. 

With a cash offer, there is no need to go through the lengthy and often complicated process of applying for a loan. This can save you frustration, time, and money.

Another advantage of a cash offer is that, as a buyer, it can give you more negotiating power. Sellers are attracted to cash offers because they lead to quicker closing times, less risk, and fewer contingencies. 

Sellers are often open to accepting a lower cash offer compared to a traditional sale that can take months to close. Sellers may be open to a lesser offer due to the sheer convenience of a cash offer.

A cash offer also means less scrutiny for the buyer. Their credit score, bank statements, and other info are not gathered by the lending company. This also helps for a faster and more private sale.

Types of cash buyers

There are two main types of cash buyers: 

  1. Individuals
  2. Investment firms 

Individual cash buyers are typically people who have the financial resources to pay for a property in full, in cash. 

Investment firms, on the other hand, are companies that specialize in purchasing properties with cash. These firms often work with investors who are looking to quickly buy and sell properties.

Many cash buyers are real estate investors, such as instant offer companies or house flippers. 

Instant offer companies, or iBuyers, are tech-based real estate investors that buy and sell houses online, streamlining the process for themselves and their customers. 

Unlike flippers, they offer a higher price for homes that only need minor updates or repairs before reselling. 

Flippers will pay a lower price for a home that needs major renovations. They make their investment by buying low, improving the property, and then selling for more.

Individual private buyers may also purchase homes using a cash offer. They may have saved or inherited cash, allowing them to avoid a mortgage. They could also be purchasing rental or other types of investment property.

To make sure the offer isn’t from a scammer, verify you’re working with a trustworthy buyer. Signs of a trustworthy buyer include:

  • Their interest in the home is legitimate
  • They have a sensible timeline for the cash exchange
  • They provide clear contact information
  • Upfront terms and fees are given
  • They make an in-person visit to the house before finalizing the sale

How a cash offer works with an iBuyer

An iBuyer is a more recent development in the selling and buying of homes. 

They use technology to locate, estimate, and make an offer on a home. They can take over the time-consuming process of selling your home by buying your home for cash, as-is, and then finding a buyer later on. 

This can be a stress-free and quick way to sell your home.

How is the home buying process different with a cash offer?

If you’re making a cash offer on a house, the home-buying process will be different than if you were obtaining a mortgage. 

One of the biggest differences is that you will need to save up enough money to cover the entire purchase price of the home.

Another difference is that you will not have to go through the process of applying for a loan. This can speed up the home-buying process significantly. Additionally, because there is no loan involved, you won’t need to worry about things like loan approval or interest rates.

There will also be no lender-based contingencies. Closing can be as simple as signing the settlement statement, title, and deed, sending the money through check or wire, and obtaining your keys.

Pros and cons of an all-cash offer

Those unfamiliar with cash deals may be wary of accepting them. However, there are several benefits, as well as some cons. Understand both before your make your decision. 

Pros of an all-cash deal

There are many pros of an all-cash deal, including a speedy sale and potential savings. 

Flexibility

Compared to purchasing a home with the financial help of a mortgage, an all-cash purchase can bring more flexibility to the sales process regarding timing, price, and rules. This is because the mortgage lender doesn’t dictate the process. 

An all-cash offer puts more power in the buyer’s hand to deal directly with the seller and close on terms they agree to, not the lenders.

Faster sale

A cash offer means you can close a sale within seven days

This is much faster than the average of 30 or more days it can take to finalize a mortgage and close a sale when working with a lender. With no lender involved, fewer contingencies or obstacles can slow or halt the sale.

No lender costs

By not involving a lender for a mortgage, there are no requirements for appraisals, inspections, or other lender requests, also meaning there will be no added fees for these services. This can save both buyer and seller thousands of dollars and hours of their time.

Stand out from the crowd

A cash offer allows you to stand out when purchasing a home. Sellers may be more attracted to a cash offer for many of the same reasons a buyer is. 

Faster closing times and less of a chance of buyers dropping out due to a mortgage falling through. The market is already challenging; using a cash offer will help you stand out from the crowd of traditional offers.

Cons of an all-cash deal 

Cash deals aren’t for everyone. Let’s look at some drawbacks.

Investment risk

On the buyer’s end of the sale, you can potentially deplete your cash by paying for the house upfront. 

As houses aren’t necessarily quick to resell for the average buyer, this could be a risky asset in which to invest so much cash. It can also leave you without the funds to complete repairs or upgrades and an emergency fund.

Amount

It takes a significant amount of cash to make a cash offer. This can make saving up for this type of offer time prohibitive.

Closing the sale

There are certain steps and costs within a real estate transaction that are necessary, whether it’s an all-cash purchase or it involves a mortgage. 

With an all-cash purchase, however, the seller and buyer have more say and will complete fewer steps because there are no lender requirements.

The steps to close an all-cash sale:

  1. Work with a third party such as an escrow company, realtor, or attorney to close the sale.
  2. Terms must be agreed upon by the buyer and seller for the property’s title, such as whether it needs to be cleared from any loans against it, before transferring it to the buyer.
  3. If the seller has a mortgage, the third party transferring the funds to pay the mortgage will need the seller’s payoff amount and mortgage account number.
  4. All documents will need to be signed and filed with the county or city to close the sale.
  5. The third party can then send the final mortgage payoff amount to the seller’s lender or the earnings directly to the seller and transfer the title to the buyer.

Paying for a house all in cash

Now knowing the pros and cons of a cash offer, homeowners and homebuyers can decide if an all-cash offer is right for them. 

Through iBuyers, reliable all-cash offers have become more available and can be a simpler selling option, depending on what’s right for your situation and your home.

With Simple Home Offer, you can sell your home in as few as seven days, get fair cash offers in 24-48 hours, and gain flexibility for your next move.

Reach out to Simple Home Offer to get started.

Photo by Alexander Mils

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