Let’s start with the basics: What, exactly, is a cash offer on a house? How is this type of offer different from a conventional home sale?
When you hear the term “cash offer,” you might imagine a potential buyer showing up to the bargaining table with a briefcase full of cash, neatly bundled with rubber bands and stacked into thick piles. While this scenario might make for a great scene in a movie, in reality, cash sales aren’t this dramatic.
A cash offer is simply a sale in which the buyer offers the seller the entire cost of the house without using financing, such as a mortgage loan. When a buyer already has enough funds to purchase your home outright, you can both avoid several (long, costly) steps.
From the perspective of the home seller, it doesn’t matter if the money comes from a mortgage loan or a seller’s own bank account. For the seller, the end result is the same: A buyer has purchased your home and paid for it.
The real difference lies in avoiding the many contingencies that pose risks for both the seller and the buyer. And that’s why so many home buyers and sellers alike prefer cash sales: They’re quicker, they’re easier, and they involve fewer hoops to jump through.
For instance, homebuyers who offer cash don’t have to worry about making their way through the financing gauntlet, otherwise known as the most common reason a contingent offer fails. That’s a huge relief for home sellers, too.
Another difference between cash offers and conventional home sales? There’s no requirement to obtain an appraisal. Because the home buyer doesn’t have to be approved for a mortgage loan, there’s no need for an appraisal to determine the home’s value in order to reassure a mortgage lender.
It is true that, at their core, all home sales lead to an exchange of money in one form or another. But cash offers remove so many of the obstacles that the conventional home sale process places between sellers, buyers, and their shared end goal. That’s why cash offers are growing more common.
How Common Are Cash Offers?
Are you under the impression cash sales don’t happen very often? You’re not alone in this misconception. You might be surprised to learn that cash sales account for between 22 and 24 percent of single-family and condo sales across the United States in the last two years.
In some parts of the country —such as cities in Florida, Georgia, and North Carolina — these numbers are even higher. Here, the percentage of cash sales ranges from 32.9 to 40.4 percent overall.
Certain scenarios tend to be common components of cash offers. These include:
- A potential buyer has recently sold their home and needs to invest sale proceeds in another property
- A real estate investor or an investment company wants to invest in properties in your area
- A home seller has contacted an iBuyer (“instant buyer) in an attempt to sell the property
- A home buyer wants to stand out or gain an advantage in a highly competitive market
- A property needs serious repairs or renovation
- A home is a good candidate for a fix and flip
Remember that a cash offer can take place at any time, in any scenario, and in any transaction. It’s important for all home sellers to understand how they work before they make decisions about their home sale.
Keep in mind that the number of cash offers shifts depending on factors such as market conditions and fluctuating price points. For example, homes under a certain price may be more likely to financed through mortgage loans, while more expensive properties may draw more cash offers.
Of course, interest rates play a role, as well. When interest rates are low, more buyers may take out loans. Some cash buyers might even pay in cash, then refinance later to take advantage of historically low rates.
What Kind of Homes Are More Likely to Be “Cash Only”?
Of course, every home sellers’ situation is unique. But there are certain scenarios where a cash-only deal just makes sense. Here are a few of the most common home types that may be “cash only.”
Homes at Risk of Foreclosure
Homeowners who are facing foreclosure find themselves between a rock and a hard place. Their financial circumstances mean they can’t make payments on their home and their options feel limited. They’re also facing tough decisions — short sales, bankruptcy, eviction — that can potentially ruin their credit and make life harder for years to come.
A cash sale offers a way out. Accepting a cash offer means saving your credit score, avoiding eviction, and moving quickly on to the next stage in life.
Homeowners Who’ve Experienced Life Changes
When homeowners undergo major life changes, such as marriage, divorce, retirement, a new job, or an illness or death in the family, they often need to move quickly.
They might need to move closer to a sick relative. They may have undergone a divorce and homeownership is a matter of contention. Maybe they’re retired, need to downsize, and can’t wait around for a conventional sale to go through. Perhaps someone has gotten a new job in a new town, and they need to move right away.
All of these life changes may lead to the need to sell quickly and without stress. A cash sale offers a solution.
Homes in Need of Repair
Sometimes, the cost of keeping a home well-maintained is simply too much for homeowners to handle. Whether it’s a cracking foundation, a roof that needs replacing, leaky pipes, or a faulty electrical system, home repairs can run into the tens of thousands of dollars.
But conventional sales make it almost impossible to sell a house that needs major repairs. Many lenders refuse to issue loans for a property that’s damaged. Fortunately, cash buyers don’t have to follow these rules.
That’s why so many homeowners sell their “fixer-uppers” to cash buyers. That way, sellers don’t have to sink time and money into repairs, and they can enjoy a fast closing with less stress.
Incentives for Buyers to Pay Cash
It’s not hard to see the benefits of accepting a cash offer on a house. It’s also not difficult to understand why a home seller might prefer a cash deal: It’s quicker, easier, and with fewer obstacles to maneuver.
But why would a buyer prefer to pay cash for a house?
In most cases, a cash offer is a stronger offer. This holds especially true in a seller’s market — or a market in which there aren’t many homes for sale — when home buyers compete with each other over limited inventory. Buyers who pay with cash hold an advantage over buyers who must obtain financing.
Along with the advantage at the negotiating table, some lenders prefer cash buyers, too. For instance, a lender may hold foreclosed homes or real-estate-owned properties (REO) in their portfolio. Often, the cash offer will win out in the case of multiple bids.
Homebuyers who pay with cash may have access to different types of homes for sale. Homebuyers who use USDA or FHA loans to buy a house are usually restricted to certain types of properties, including homes in certain places or in certain conditions. Cash buyers aren’t bound by these restrictions.
Cash Sales Save Money
Another advantage of buying with cash? Saving money. A conventional home sale involves thousands of dollars in closing costs such as appraisal fees, processing fees, document fees, credit checks, and loan origination fees. Cash sales greatly reduce closing costs for buyers and sellers alike.
Cash buyers also pay less over time. They’re not using a loan to buy the home, so they don’t have to worry about paying interest. Over the years, that interest can add tens of thousands of dollars to the price of a home.
Cash Sales Provide Equity
In addition, cash buyers have instant equity in the home they buy. That offers a sense of security in case a financial issue should ever arise. No mortgage means not being at the mercy of market swings, because that equity is already there.
Faster and Less Stressful
Finally, a cash sale closes quickly and causes less stress. There’s no waiting for the underwriting process, which can take weeks. There’s no anxiety over a less-than-great credit score, and there’s no waiting on tenterhooks for the results of a home appraisal.
Given all these benefits, it’s no surprise that many buyers choose to pay in cash.
If you’re considering selling your home, a cash offer can provide a solution. As we’ve seen, cash sales offer benefits from faster closings to lower costs and less stress. If you’re ready to explore the advantages of a cash sale, contact our team at St. Louis Realty Advisors at 314-270-1601 for your quick, fair cash offer.