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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I feel like this question is specifically about the word cash? When you buy a house with ‘cash’ it’s not using paper notes, it just means “I have the money, I don’t need mortgage”, the money is there ready to go with no mortgage agreement necessary.
“Cash” doesn’t mean that the transaction is done using cash. It means that the buyer doesn’t require financing in order to purchase the property. This removes the risk to the seller of having the buyer’s financing fall through before the closing.
Something folks don’t think about when considering a cash offer vs a financing offer–while you’ll be entitled to keep the deposit, the idea that you’re going to sue the purchasers who balked at a cash offer and be successful (ie see it out and have the purchasers have the cash on hand to satisfy a Court’s judgement) is low if not impossible for the common home vendor.
(YMMV–I’m in Ontario–there is literally a different real estate conveyancing system in every province and every state and they vary broadly)
Sometimes, cash is preferred because banks jerk you around, makes you sign forms, then deny you because of various things. Can take a long time.
Sometimes, cash is preferred because they don’t *want* the bank to get involved and discover things wrong with the house that the new buyer is stuck with and will have to repair (so they won’t be able to sell the house until they fix it. Plus side, deal is done pretty much instantly.
It’s a bad system.
When it boils down to it, if a bank is loaning you the money, they’re they ones buying the house, not you.
Banks can be incredibly picky about things during the home-buying process. They want to make sure that they’re paying a fair price and the home is in good condition. They will want a 3rd-party appraisal to make sure the home is actually worth what you want to pay. They will require a termite inspection. They will require flood surveys to make sure it’s not in a floodplain. They will require a title search to make sure it actually legally belongs to the seller and there’s no funnybusiness going on with liens or easements or mineral rights or my uncle actually owns 15% of the house.
They will require insurance and the list goes on and on and they can just decide “nope” at any point in the process.
Cash buyer eliminates pretty much all of that. We agree on a price, you give me money, I give you the house, end of transaction.
A cash sale really only means the buyer has no loan contingency. So, even without a loan commitment and funding, the buyer is obligated to close the sale… but nevertheless the closing cash could come from a loan, there was just no loan contingency in the buyer’s favor.
When people offer to pay with cash, it’s more certain that the deal will go through at the end of closing than an offer contingent on bank approval.
After the home inspection by a certified inspector, many issues can arise. The bank may not be willing to loan “X” amount of money on a particular house, even though you felt the price was acceptable…
And even if the bank is willing, the potential buyer may suddenly realize the house they liked has serious issues that they don’t want to deal with.
A “cash” buyer does not need approval from a bank. For some reason, they are willing to pay a little more than what the typical house in that neighborhood is selling for at the time. Maybe they are in a hurry and are willing to pay $10K extra to smooth things out. Cash is cash…
Cash buyers can close the sale faster and the sellers will get their money faster.
Most people when they buy a house use a standard contract from the Realtor. In this contract there is a provision that says something like “subject to buyer securing a loan for the purchase of the house.” the language can be quite different but the idea is, if the buyer fails to secure the loan, for any reason, they can get out of buying the house.
Now they may lose the escrow money but that’s often WAY less than the price of the house.
So a buyer can hold a house for many weeks (sometimes 6 or more weeks) under contract and fail to secure a loan for it’s purchase. During that time the sellers are unable to move on with their lives.
Also most sellers are moving to a new house and part of that deal is for them to sell their old house. So they close on the sale of their old house and sometimes, the same day, the close on the purchase of their new house. If the buyer doesn’t qualify, both deals may fall apart.
Cash buyers eliminate all that.
If you’re selling a TV, would you rather have A) someone walk up with $100 and take the TV or B) someone say their bank will give you $100 next week after the TV gets appraised, but only if it’s appraised for the full $100 and after they sell their old TV?
Obviously that’s an extreme example, but cash offers are often faster and have less contingencies.
When selling my house, I had eight offers ranging from $250,000 to $270,000. I took $264,000 cash. Why? I had the money in my account in three days and the sale was done. Would $270,000 have been better? Maybe, but what if the home inspection went bad, or the buyers didn’t sell their house, or the appraisal was less than asking price? All those factored in, so I took cash for ease and a quick sale.
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