Why would a home seller prefer a cash buyer? After all, the seller gets their funds from the title company the same way regardless of how the buyer pays.
Sellers often do not care where the purchase money is coming from, as long as the buyer can get their loan approved in a reasonable amount of time – and the seller gets their money. However, the mortgage loan process can be time-consuming and comes with no guarantees.
Let’s look at four reasons why a cash homebuyer may be more appealing than a buyer getting financing:
1. Skip the appraisal.
Mortgage lenders require an appraisal of the property to determine if they will lend funds for the purchase of the property. Let’s face it. Home appraisals are unpredictable. In our changing market of rising prices, the uncertainty of an appraisal adds risk. There is less chance of the deal falling through if a home sale does not require an appraisal.
2. Disregard buyer loan approval.
When a homebuyer is financing a purchase, the sale is typically contingent on the buyer obtaining loan approval within a specified amount of time. If the buyer can’t get their financing, they can’t buy the property. They may get out of the contract (within a specified time) if there is a financing contingency. Despite promises and pre-approval letters, a seller cannot be certain that a buyer will qualify for their loan.
3. No property loan approval.
In addition to a buyer qualifying for their loan, the property must also meet lender’s requirements for the loan. Those requirements involve the appraisal, insurability of the property and any lender-required repairs. Depending on the terms of the contract, the buyer may be able to get out of the contract if the property does not meet the lender’s terms for their loan.
4. Quicker closing.
The loan approval process often takes weeks. Cash sales can take just a few days to close. The vetting of both the buyer and the property condition is effectively skipped when no lender is involved. However, just how quickly a sale can close also depends on how ‘clean’ the title may be. The same title search is conducted on both cash and financed transactions to uncover all liens and encumbrances on a property.
Money is Money
A cash buyer will not actually be paying in actual cold, hard cash. In Texas, real estate must be purchased with “good funds” such as a wire transfer or cashier’s check. The title company has the discretion to determine which good funds it will accept.
All title companies are legally required to report any cash or personal checks used to close a transaction that total more than $10,000 to the IRS. This is designed to discourage money-laundering, tax evasion, drug trafficking, and other illegal activities.
Regardless of the source of the funds, the money passes hands through the title company.
Historically, most cash buyers are investors, second homebuyers, or older buyers who are using the proceeds from the sale of another property. Traditionally, the percentage of cash homebuyers in the U.S. hovers just above 20 percent.
For many sellers, a cash offer does not overly impress. Just because a buyer is paying cash does automatically earn them the right to bargain or jump to the head of the buyer line in this hot market. While there are advantages to picking a cash offer, most sellers will agree to an offer with terms that suit them best.
