A cash offer on a home is a real estate purchase that requires no mortgage financing. Also known as all-cash offers, these types of purchases are popular among investors and can speed up the closing process. However, while there are multiple benefits to accepting an all-cash offer, it’s important to consider the drawbacks as well.
In recent years, a growing number of buyers have been offering all-cash offer on homes. This is especially true in hot markets where homes are selling quickly and competition for them is high. While some real estate professionals suggest that sellers accept all-cash offers, others recommend that home buyers considering all-cash offers speak with a mortgage professional first. This way, buyers can see if they will have enough financing to buy the home and avoid any surprises down the road.
One benefit of a cash offer is that it eliminates the need for an appraisal, which can be time-consuming and costly. Another advantage is that a cash buyer can close the sale quickly, often in as little as 10 days. This is significantly faster than the typical home sale, which can take up to 50 days. In addition, a cash sale typically doesn’t have the same contingencies that are common in many traditional home sales, including an inspection and financing approval.
Besides the faster closings and fewer contingencies, there are other reasons why cash offers are more appealing to some buyers than conventional loans. For instance, buyers facing foreclosure or eviction can get out of their mortgage by making an all-cash offer. This can prevent them from damaging their credit and save them the stress of losing their home. Additionally, some people have life changes, like a divorce or a death in the family, that require them to sell their home quickly. Often, these individuals cannot afford to wait for the home to be sold through a traditional loan or short sale.
Cash buyers can also potentially pay a lower price for the home. This is because they are not paying for the cost of an inspection, appraisal, and other standard fees that come with a typical mortgage. In some cases, all-cash offers can be as much as 10% below the asking price. However, a quick close and the assurance that the home will sell can make up for the lower offer in most situations.
While there are many advantages to accepting a cash offer, it’s important for buyers to consider their own needs and the state of the market before deciding to do so. Before making an all-cash offer, it’s also a good idea to verify that the buyer has the money to make the purchase by requesting a proof of funds letter. This document outlines how the buyer will fund the purchase and can be used to protect both parties in the event that the sale falls through.
In addition to ensuring that the buyer has the funds to purchase the property, it’s a good idea for buyers to be prepared for extra expenses, like moving costs and property taxes. Homeowners may also want to budget for a home warranty and other additional home ownership costs.