3 Things To Consider Before Accepting A Cash Offer

Dated: 07/01/2015

Views: 738

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The cash buyer outranks the financed buyer because there is a lower chance of the deal falling through and because, typically, a cash buyer can close faster than a financed buyer. These are attractive benefits in some situations. Yet there's more to a home offer than a finance contingency and the closing date. In general, there are three things you should scrutinize before accepting a cash offer for your home: 


1. Source of the Cash 

Of course you need to verify that the cash buyer has the cash he says he does. But it's not just a question of how much cash the buyer has, but also what type of cash he is holding. A buyer needs liquid cash―enough money in the bank to cover the balance of the purchase price and closing costs. That's potentially hundreds of thousands of dollars that the buyer must deliver in the form of a bank or cashier's check at the closing. A buyer who needs to sell a property to raise the cash is as great a risk as a financed-buyer, as there is a chance that they will not be able to sell their current home on time.


2. Other Contingencies 

A cash offer contains no finance contingency but that does not mean the offer is contingency-free. Most buyers reserve the right to appraise and inspect the property before closing and to withdraw from the contract if the inspection reveals any major repair issues. If an inspection reveals any problems, you will have to carry out the repairs and/or renegotiate the purchase price. For this reason, a cash transaction may not proceed any faster than a mortgage-financed purchase, and there is still a chance the deal will fall through. 


3. The Bottom Line 

Some cash buyers, especially investors, make a low cash offer because they are cash buyers. They effectively charge a premium because there is zero risk of the bank refusing the buyer's loan. This may not represent the best deal for some sellers, especially those that need the sale proceeds to purchase a new home. 


Weighing Your Options 

If you are lucky enough to receive more than one offer, and at least one of those offers is cash, the real question for you to ask is: how risky is the financed offer? The most telling answer to this question comes from the buyers themselves; specifically, what action they have taken towards securing the necessary financing. A financed buyer who holds a quality preapproval letter, provides a good down payment and has reliably paid a mortgage in the past likely will get his loan. These qualities render his offer as strong as or stronger than the cash offer, particularly if he offers a higher price. The trick is to look at the deal holistically and not be swayed by the word "cash."

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