Have you ever heard of a cash offer in real estate? Maybe you envision it as a buyer coming to the seller with a suitcase filled with neatly stacked bills and ready to hand it upfront. However, that representation of the cash offer we see in movies is not what it is in real life. This article will explain the basics of the cash offer and if it's worth considering.
The Basics of Cash Offers in Real Estate
A cash offer refers to an all-cash bid. This means a homebuyer wants to buy a property without any type of financing or mortgage loan involved. Usually, these offers are more appealing to sellers. It's because a cash offer means no buyer financing fall-through and also a faster closing time. It also minimizes intermediaries.
Being a cash buyer provides an advantage over mortgaged buyers. Most sellers will prefer a buyer who can quickly close the transaction without an uncertain underwriting process.
A mortgaged buyer does not have a guarantee that their lender will approve the loan. Like home appraisal and credit score, several other factors affect the bank's decision to approve or reject the loan application. It is one of the reasons why a financed offer is less attractive for most sellers. Cash offer, on the other hand, comes with no strings attached.
Why consider a cash offer?
Here are some reasons why you might consider buying a property through a cash offer.
There Is No Need for an Appraisal
A home appraisal is required for mortgage lenders. This is to let them know that the home's worth is at least as much as they are asked to finance. It minimized their risk of financial closure in case foreclosure happens.
If you're a cash buyer, there's no need for a lender; thus, no appraisal is required. However, an appraisal will let you know the worth of the property you're paying for. So, getting an appraisal is still a benefit for you.
It's Faster and Preferred by Most Sellers
With a cash offer, you don't need to underwrite a mortgage, which is the lengthiest step in buying a property. Without this process, sellers don't only save time; it also avoids any risks.
It's a Stronger Offer
As we've mentioned before, most sellers prefer cash over mortgaged buyers even if the latter offers more. This is because the cash offer closes sooner, and there is no need for an appraisal and mortgage underwriting process. Sellers will have a lesser risk of fall-through to deal with.
Read also: Why Staging Your Home Is Essential When Selling
It Has Lower Costs
The total costs of buying a property are much lower with a cash offer. A traditional sale will require you to pay numerous bank-related fees such as origination and processing fees and credit check costs during closing. Since cash buyers don't have a mortgage, there's no interest they need to pay. This means they will be able to save thousands of money over the years.
A cash offer can offer various advantages for both the seller and the buyer. However, this option may not always be the right choice for you. Just like anything else in this world, a cash offer comes with pros and cons. Make sure you weigh it first before you consider buying a property in cash.
