When it comes to selling a house or any property, selling it for cash seems like a reasonable deal. But is it really a good deal though? If you are planning to sell your house for cash or planning to buy a property with cash then it is best to know how to assess if it’s a good deal to do or not. Here are some things you need to know about cash offers.
What is a Cash Offer?
A cash offer usually refers to an all-cash offer made by a buyer. All-cash means the interested party will buy a property with cash and not on postdated checks or mortgage financing. The buyer does not need any mortgage or other type of financing to close the transaction as they are willing to pay you in cash to complete the transaction. This could be an advantage as the seller does not have to deal with lengthy processes of selling or deal with mortgage because the transaction can be closed without any underwriting process involved. It’s an efficient way to get rid of a property and practical for both the seller and buyer.
How a Cash Offer is Made
Cash offer provides benefits to both the seller and buyer but this will also depend on the nature of the market. Buyers should follow the right procedure if they intend to make a cash offer so sellers can accept their offer over any other potential buyers. Here’s how you should do it:
- Put the cash into one account
Accumulating the funds in one account makes it easy to see where the money is when the transaction is going to be closed. A single bank statement is all you need as proof of funds and saves the seller time to double check multiple documents to prove that the buyer has the money.
In case the buyer intends to use money from sale of securities or real estate, this should be liquidated into cash before they even enter into a sale contract. The buyer must also have the cash ready before sitting with the seller and real estate agent to write the offer on the property they are interested to purchase.
- Have a prepared budget for expenses
Besides the cash for the property, the buyer must also have another budget for home expenses. These expenses include property taxes, home owner association fees and home inspection fees to be paid. It is also the buyer’s responsibility to check for other costs before purchasing the house. This way he or she knows the total amount they will pay before closing the deal or entering into a purchase contract.
- Make the cash offer
A form used in the state where the property is located must be filled in by the buyer’s agent. This form must include the buyer’s deposit as part of their credibility for buying the property. The agent and buyer must also attach a copy of the latest bank statement as proof that the buyer has enough money to close the said transaction.
In order to present the cash offer, the buyer must have financing contingency. This is a requirement for anyone who offers cash in a real estate transaction especially if the buyer uses bank financing. However, depending on the marketing conditions, the buyer can also present an offer lower than what others are offering the seller. In some cases, the seller may be willing to accept a lower purchase because they want to close the deal fast. This could be an advantage to the buyer.
- Create an attractive deal
It is the buyer’s job to make the deal attractive when they present it to the seller. Since cash offers don’t really have any underwriting process, the buyer should propose a good deal especially 10 days before the closing date. If the house or property is new or has been renovated, the buyer can remove the home inspection contingency. They can offer a home inspection instead if they want to get information about the house or they can offer a much higher price than the existing ones.
Advantages and Disadvantages of Selling a House for Cash
Selling your property for cash can be a sweet deal but while it has its advantages, it also has its disadvantages. Here’s what you need to know:
It’s a quick sell
You can expect that the sale is going to fall through. Unlike other method of selling your property, selling it for cash is almost guaranteed to end in a deal. This is because there is no middle man to do everything for you. You don’t have to wait for lengthy procedures just to get the money you need. Once all requirements are met, the seller and buyer can then close the transaction in less than 10 days. You as the seller can then get the money and the buyer can take over the ownership of the house within a short span of time.
In case the buyer is using a loan financing, the process can be a long one. It may even take several months as the lender must verify if they are worthy of credit or not. There is also a chance that the process could not fall through if the lender does not approve the loan.
There are no contingencies
Traditional transaction for a home sale usually includes mortgage and other contingencies before the transaction is closed. Some of these include appraisal, home inspection, mortgage financing and many others. Because of these, the process can take time and paperwork are usually plenty. With a cash offer, the buyer can skip these contingencies and other potential blocks that could derail the closing of the transaction.
While cash offers are great, there are also some disadvantages to it and they are as follows:
Tied up funds
This means that the buyer will be tying up a lot of funds especially when they are offering to pay the property all at once. They could experience shortage on cash which could have been used to invest in other assets. The buyer must make sure that they have enough money to present and pay other expenses along with it.
Paying in cash has no tax deductions
A buyer who decides to purchase a property with cash can miss the tax deductions. These could have been used if they have mortgage financing to close the said transaction. However, this does not apply on cash offers.
Selling your house for cash is a good deal especially if you are in a hurry to move out or in need of quick cash. However, you must also be selective when it comes to your buyers. Check the buyer’s background before you go into transaction with them and always see to it that they have money before closing the deal. Keep in mind that there isn’t much you can do once the property is sold so you must be cautious as you make the closing.
Cash offers are great; they are easy money and your means of getting rid of the house fast. Just make sure that your decision is final otherwise you will be wasting your time and your buyer’s time too, good luck!