Why do home sellers prefer a “cash” buyer? Wouldn’t they get the same amount of $ as a check from the bank if the buyer has a home loan?
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Personally I think all cash offers are overblown. Yes it is the best offer because the likely hood of the buyer having the money is all but assured. But in a down market cash buyers are often arrogant sharks that will low ball the crap out of you. If someone is putting like 20% down it is almost a lock they will find financing. If they cash buyer is a low baller and the one with financing has a strong offer you take the extra money even if closing takes a few more weeks.
The advantage of a cash buyer is a guaranteed closing.
It can take 3 months or longer to close on a house and it could be derailed at the last minute.
I purchased a house with cash and I have financed a house too. Purchasing a house with cash is easy and quick.
Realtor who reps the largest cash buyers in the US here:
The main difference is that the money coming from a bank comes with many strings attached. The property has to appraise at the value of the offer otherwise the amount written on the offer price line doesn’t mean shit! The large professional firms will require a buyer to post an appraisal gap to cover the difference in the case the property doesn’t appraise (bear in mind appraisals can vary by person performing it and given the speed of the market today, many appraisers regularly improperly capture that speed and appraisals come in low or high vs true market value).
The benefit of a cash offer is that the end result is basically spelled out for you up front, you KNOW exactly what the final price is up front.
The catch is that you need to get a verifiable Proof of Funds up front on cash deals. There are a ton of wholesalers out there who will get you under contract but not actually have the funds or buyer to assign the deal to up front, then waste your time when they can’t perform. One thing you can do to avoid that is require larger Earnest Money and have the buyer tighten up their Due Diligence (inspection) period. Research your buyer when you receive an offer and you’ll be amazed at what you find!
>Wouldn’t they get the same amount of $ as a check from the bank if the buyer has a home loan?
Your answer is right here. If you will be getting the exact same amount of money, why won’t you take the money in available cash right away? Why will you choose to purposely wait for a loan to get approved?
At the least, you have to wait several more days and delay the finalisation of the sale. At worst, their loan application gets denied and you don’t have a sale and gotta start all over again.
Cash closings are quicker. Also with banks they have to factor in an appraisals so they may not approve the loan due to what the house ask amount is.
When I buy run down properties to rehab into rentals almost all the sellers want a cash buyer. I have not found a traditional bank that will lend money for a house that needs rehabbing. Sellers will not even show a house if you are not a cash buyer. The way to get around this is to find a ‘hard money lender’. This is a person who has cash and will lend it for a higher rate than the bank for a short time until you can get a bank to lend you money on the property after you fix it or by borrowing against another property. Kind of like a loan shark but less leg breaky. Since sales of such houses go quickly, it is good to have a hard money lender on speed dial. If you have a 401K at a job, you can borrow against that for the short term as well and you pay your own account like 4% interest and pay it with payroll deductions all for a relatively small origination fee. Since you can pay that back early at any time, you can just do a quick out and back in to get cash for the transaction. I did that once to bridge over buying the next house for a few weeks while my other sale was pending.
Otherwise, like people are saying here, cash makes the sale go way easier as you don’t have to wait on funding that might not come.
Despite every answer here being right – when our house was listed, cash buyers were the worst because they were primadonnas and basically wasted our time. Our agent confirmed cash buyers are often worse to work with because they think they can get anything they want because they’re a cash buyer. Especially first time homeowners who are cash buyers – because that is mom and dads money, not theirs – so that’s the kind of people you’re dealing with.
Cash is king. I once lost a bid on a house that was $25k higher than the accepted offer – which was all cash. It’s a direct transaction between buyer and seller – less complicated, faster to close, and no worries about bank requirements and appraisals. Inspections can still be an issue but you’d have that with a financed transaction as well. Bottom line: fewer ways the sale can go south, leaving the seller to start all over again.
One thing I haven’t seen mentioned :
When you sell a house, you negotiate a price with the buyer. If they use a bank, the bank gets to appraise the house and decide how much they will lend. If their appraiser decides it isn’t worth what you agreed to, all of a sudden you have to take less from the buyer or find another whose bank is willing to lend them more.
I always felt like it’s this:
Sellers: House is going for 400k, we have offers on the table.
Buyer: will give you 350k in this suitcase.
Sellers: We’ll take it, but the paperwork will list house as 200k (you know for taxes also assuming sellers purchased for less than 200k).
Buyer: ok, you have a deal.
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