A cash offer is an all-cash bid, which means that the home buyer wants to buy the property without a mortgage loan or other financing. These offers are often more attractive to sellers because the buyer is not at risk of declining financing and generally faster expiration time.
Did you receive a cash offer at your home? Are you considering making a cash offer or want to compete with buyers who do? This guide will help.
If you are interested in a cash offer on your home, Opendoor can help.
How Common are Cash Offers?
Cash offers are more common than you might think.
According to ATTOM Data Solutions, cash sales in 2018 accounted for more than a quarter of single-family and condo sales nationally. Although this cash offer is far below the maximum (it was 38% in 2011), it is much higher than the previous one. The average rate from 2000 to 2007 was 19%.
Of course, the number varies by city.
Information from ATTOM Data Solutions study revealed that the largest share of all-cash purchases in 2018 was in the metropolitan statistical region (population of at least 200,000 and 200 sets with sufficient cash sales data). These include Montgomery, Alabama (54%), Naples , Florida (53%), Macon, and Georgia (51%).
In general, cash offers are more likely to appear in these cases:
- The investor (or investment firm) is interested in the property.
- The buyer sells his previous home and has the proceeds to sell.
- The seller will provide you genuine articles as he does not want to tarnish his image.
- There is a lot of competition and the buyer wants to stand out.
- The property needs to be repaired or overhauled and is as attractive as a fix-and-flip home.
Cash offers will increase not only for the above but also for any transaction. If you are planning to buy or sell a home shortly, it is important to be aware of these offers and how they work.
How is the House-Buying Process Different With Cash Offers?
With the cash offer on the table, the buying and selling process is a bit different, as it involves a mortgage.
For one, the process is usually faster. There is no mortgage application, documentation, or guarantee, and the buyer usually does not need an appraisal.
As a buyer, you still need to streamline title policy and insurance, provide proof of funding, and sign closing documents. But according to Redfin, you will be offered at least two total weeks to close cash offers. As of September 2019 for forecast, it took 43 days to close the mortgage loan.
Here are some other ways to switch with a process cash offer:
Cash sales are usually less contingent. Buyers may not have an emergency need for financing (this is for a mortgage loan), and may also have an emergency need for a sale.
Some buyers still seek inspection contingency.
Estimates are usually lender-inevitable, so without a lender, the buyer, in general, should not have to worry about them.
There are a few instances where buyers still want an estimate – especially if they are investors to guarantee returns.
The closing process on cash offers is very simple. As a buyer, you sign the settlement statement, title, and deed, hand over the cashier’s check (or cash out), and receive your keys.
Without too much financing, paperwork would be significantly reduced. Since lender fees are not included, your closing costs will also be lower.
4. Title and Escrow
As a buyer, you still need a title and escrow company to handle the transaction, but you may have a greater choice in choosing these parties without a lender. Shopping around can help you compare fees.
Another major difference is that cash buyers must prove their financial capability to the seller before proceeding. With a mortgage loan, buyers usually come to a pre-approved table, meaning that the lender has vetoed them and decided that they have the financial means to handle the estimated mortgage payments.
In cash sales, this safety net does not exist. Instead, the buyer usually has to provide proof of money letters from their bank, showing that they have the funds to go through the sale.
Should You Consider Cash Offer When Buying a Home?
So, should you make a cash offer on a home? Just because you have no means, does not mean it is the right step. However, all-cash bidding can have benefits as well as disadvantages.
Here are some rules you should keep in mind when making your decision:
Advantages of Offering Cash:
- They give sellers more confidence
- They can provide fast completion time
- Your credit score is not important in this process
- You do not need a home assessment
- You can save money over time (no interest payments)
- Minimize the paperwork and documentation you need
Disadvantages of Offering Cash:
- It takes a considerable amount
- You limit your liquidity and tie your assets into a single, difficult asset.
- You cannot use a mortgage-related tax deduction
You also want to remember the overall competitiveness of the market – and what you need for a home. If the market is hot and there are plenty of other buyers, the cash offer will push your line up.
Lastly, don’t forget your offer of all the cash you want. In addition to what you pay the seller, you will need money to cover property taxes, homeowners insurance, HOA arrears, diligent money, moving expenses, and more. Make sure you have the money to maintain your savings without compromising (you also need a pillow for unexpected repairs and maintenance work).
Not giving cash offers, but coming up against one when buying a home?
Not to worry – here are some ways to isolate yourself:
- Offer at or below the list price. Some cash offers are below the list, so it may give you a leg up.
- Write an offer letter to the seller to make your offer unique.
- Include a growth section to make it look simpler for you.
- Examine whether it makes sense to forgive any contingencies.
- If you are selling a home, consider a cash offer.
If you are selling a home, you will probably face a cash offer or both – especially if you are in a prosperous market or have an attractive niche for investors.
Generally, these are the types of buyers who offer cash:
- Investors are looking to fix and rotate assets or buy and rent them.
- Retires by tapping mortgage savings
- Homeowners who have used previous sales will move in to buy a new property
- Wealthy buyers who can put large amounts of cash
- Buying companies that buy your home directly
No matter who submits a cash offer, you should consider both before accepting it. While there are benefits to going the entire cash route, this step is not for everyone.
Here are some benefits to keep in mind:
Advantages of Accepting Cash Offers:
- There is no risk of buyer financing declining
- The closing process is usually faster
- Usually, there is no evaluation
- You can avoid some emergencies
Disadvantages to Accepting a Cash Offer:
- This may be less than other offers
- The buyer is usually not fully weighted
If you are selling the entire cash to the buyer, it is important to understand both of them and see to it that you make the best decision for your situation.
How OpenDoor can Help you With a Total Cash Offer?
If you are selling your home (or considering it), the cash offer can be very tricky. After all, the closing process is often quick and there is no risk of the buyer’s financing deteriorating.
Openhouse makes that cash sale available. You do not need to list your house, if your house is eligible, you will get a competitive cash offer in just 24 hours – all just a simple form and some details about your property.
Cash offers can offer serious benefits to buyers and sellers. But they may not always be the right choice.
If you are selling a home, make sure you consider the pros and cons of the cash offer, as well as where the offer is coming from. You need to make sure that you are doing business with a reputable party that has the money to follow through with the contract.
If you are buying a home, think long and hard about keeping your cash in a single asset. Consider talking to your accountant or financial advisor and making sure you understand the whole picture before proceeding with the entire cash bid.