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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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.
>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.
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!
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.
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.
I got a cash buyer a couple years ago when I sold my house. There are a lot of what’s called “closing costs” associated with these deals. It’s a bunch of fees and stuff from the banks and whatnot. Traditionally the seller is expected to cover these. When the buyer can pay cash you don’t have to deal with those things. I made something like an extra $5,000 profit just from avoiding closing costs.
Before the bank loans out money to someone, they want to make sure the asset being purchased is actually worth the money they are lending out. If the borrower can’t pay, the bank will want to sell the house to recoup the loan money. So giving a borrower $500k for a house appraised at $400k wouldn’t be smart. In this market, house prices are increasing at a faster rate than appraisal values. So this is a risk the seller might face, where the market says the house is worth $500k but the appraisal says it is $450. With cash, there is no appraisal. The seller has no risk of the deal falling apart due to appraisal issues. The buyer just ponies up $500k.
Cash sales close faster, to the tune of 10-15 days sooner so the seller gets cash in 15-20 days instead of 30.
My wife and I went to buy our house with great credit, a pre-approved loan, and a solid down payment. Then the bank’s initial appraisal came back almost $10k less than our offer. At that point, neither we nor the seller could negotiate. Any cash we had was committed to our down payment and the bank wouldn’t budge. The buyer had to either accept less money or cancel the sale. For a bit, it looked like they were going to walk away and my wife and I would be back to house hunting.
Cash offers aren’t subject to that. There’s no chance of a loan falling through. There’s no chance of an appraisal knocking a chunk off the final price. There’s significantly less paperwork and lawyers and headaches.
It’s part of why homeownership is so inaccessible to first-time homebuyers. If you just sold a home, the equity will significantly lower the cost of your next mortgage or even give you enough money to buy the house outright (especially true for people moving from expensive to more moderately priced markets). If you’re renting, you have no equity and a significantly less impressive down payment even if you’ve been able to set aside money.
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