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SELLERS: Choose an ALL-CASH offer instead of FINANCED Purchase

Sellers, some of you are receiving multiple offers on your property for sale. So what's a seller to do? How to choose the BEST offer?

Well, if the price (and total costs) net the same, select the offer with the most cash financing. For example:

An all-cash offer is better than an offer with a 50% downpayment and 50% financing
A 50% downpayment is better than a 20% downpayment conventional loan
A 20% downpayment is better than a 3.5% downpayment FHA loan

"But why is an all-cash offer better than a financed offer," you may ask? "I'll net the same amount of money in the end, right?"

Yes the NET may be the same BUT there are other issues that Sellers must consider:

1. An all-cash offer can close QUICKLY (assuming the buyer has funds available immediately -- ask for proof of funds). Whereas, a financed purchase usually takes at least 30 days to close, and many times longer. And the faster you get your money, the sooner you can invest it in something else, or simply be relieved of the hassle of selling your house.

2. All-cash offers don't have financing CONTINGENCIES. Will the buyer's loan go through? Won't it? How can you be sure? After many years of real estate sales experience, I can say that a high percentage of purchases fall out of escrow due to financing issues. Such as:

Buyer qualified earlier, but now does not (credit score changed; financial ratios changed; buyer bought a new purchase on credit)
Lender changes their loan requirements (they shouldn't, but some lenders change in the middle of the loan)
Buyer's rate lock expired and loan rates increased
Lender goes out of business (yes, this has happend up to 1 DAY BEFORE close of escrow)

3. With an all-cash offer, the buyer is very confident that he can close escrow, so you the Seller can request a NON-REFUNDABLE earnest money deposit. However, a financed buyer usually insists on a refundable deposit, because they are at the mercy of their lender.

4. No appraisal is needed for an all-cash offer. This is a critical piece of the financing "puzzle". Lenders will require an appraisal to determine the house's value. Appraisals can kill a deal. How?

An appraisal comes in LOWER than the amount agreed between buyer & seller. Now the buyer wants the seller to lower his price, but the seller refuses.
An appraisal notes specific items on the home that are "red flags" for the lender's underwriting department, and they refuse to proceed until certain items are fixed, which the seller refuses to fix at his expense (FHA & VA lenders are notorious for this).
The appraiser is from out of the area, is not familiar with that specific neighborhood, and therefore does a poor appraisal, which is questioned by the lender.
Appraisals can take a long time to get completed, especially with the new HVCC laws, they are delaying escrow closing time-periods.
The lender, for whatever reason, isn't satisfied with the appraisal, and orders a 2nd (or 3rd) appraisal to confirm the 1st one; and then uses the lowest appraisal value.

5. Fannie Mae loans will question certain things, such as "property flipping", and will not lend on a property that has been sold within the previous 90 days. But all-cash buyers don't have to worry about these restrictions.

6. All-cash offers eliminate a huge layer of documents, paperwork, red tape, government rules, and headaches for the Buyers, and save time.

Of course, TERMS and PRICE are not the only things Sellers considers when selling their house. Private sellers (not banks or corporate sellers) may care a lot about their wonderful family home, and may select a Buyer who is going to live in the house and take care of it, rather than an investor who will only rent it out.

But remember, Sellers: to get to CHOOSE the best offer, you must first have multiple offers! And "How to get Multiple Offers" is a topic for another blog!

Regina P. Brown
Broker, Realtor®, e-Pro
Author of eBook "Stop Foreclosure Fast: Solutions to Save your House"
Author of forthcoming book, "Virtual Office Guide for Business Professionals: Work & Profit from Home"
Join & post to my NEW ActiveRain group at http://activerain.com/groups/virtualoffice

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Posted by Regina P. Brown, e-Pro Realtor® on 05/29/2009 04:47 AM

Comments (52)

Selecting Offers in the Home Selling Channel

all cash offer, investment property, real estate investor, buying and selling investment condos, regina p brown, california, san luis obispo

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52 Comments on SELLERS: Choose an ALL-CASH offer instead of FINANCED Purchase

MAY

Also All-cash buyers are savvy investors and aren't afraid of minor fix-ups that need to be done.

Good information. Most of it is common sense, if you're a seller or listing agent.

Sadly, industry practices, poor or no pre-qualifying, insufficient earnest money, easy financing contingency practices, etc., give the cash buyer a real advantage.

It is good information though I don't know myself about the over 20% versus 3% fianancing. Both loans are the same. Fha is usually easier to get approved than a conventional. It looks good but.....is there really much difference? But I guess l would be with you take the 20% down first.

Regina,

Some buyers don't understand that they are not "cash" if financing is involved.

I have to go into your scenarios above. Thanks for the post.

Regina, great post. I liked the way you did the comparisons.

Regina, this is an excellent post for buyers and sellers in the USA. Many, but not all, of the comments would also apply in Canada since some of our rules and programs are different.

Regina, All good points on the seller side of the transaction. However, when I am representing the buyer in a cash transaction I always include an appraisal addendum to protect my buyer.

Hi Regina,

I had a "cash" sale set to close today. Turns out the buyer used a lender to get the "cash" to purchase the lot out of his loan to build. Now, the buyer's agent is asking for an extension. And I say, why???

Regina, Great post but I would also say that many agents make their cash offers contingent upon appraisals to protect their buyers. Don't think it's necessary for most investors but for buyers for whom it will be their principle residence it probably is.

Interesting but we have much more cash buyers today than ever. That puts first time home buyers who usually do not have enough cash but have a good salary and solid financial approval in a weak position. It became usual for the corporate sellers (banks, asset management companies, etc.) to accept cash offers and decline higher bids with financial contingencies. Very interesting post!

Great post, I have seen it happening more and more in my area. Cash buyers are being preferred over mortgage buyers even when the offer price is slightly lower.

Bettina

#4 is the key.

Proof of funds is also crucial, as "Cash" buyers who buy with liquid assets are very different from "cash" buyers who are just refinancing another house or getting a low LTV loan in relative stealth.

This is another great post you have provided us with, Regina. Thanks.

Whoever holds the gold makes the rules. Same principle since the beginning of time. I use private money in my investments in real estate for these exact same reasons.

I really love working with all cash buyers. The green stuff is a great tool when working with a less than wonderful offer. Quick closing does it almost every time.

I do have to question this comment: "Private sellers (not banks or corporate sellers) may care a lot about their wonderful family home, and may select a Buyer who is going to live in the house and take care of it, rather than an investor who will only rent it out."

Although warm and fuzzy sentiments that are great when presenting your buyers in a multiple offer situation, which is not terribly frequent these days, but can be troublesome if it is the attitude a seller or a listing agent takes when presenting a home. I think it could be very costly to the seller and the lsiting agent if an offer was refused strictly on the intent of the purchaser.

I would think we should be encouraging our sellers to think of it as a HOUSE and on the flip side get our buyers to think of it as a HOME.

Cash buyers are wonderful. They know what they're doing. They've probably already researched the market. They're not afraid of "fixer uppers" (as you point out). There are ZERO lending issues to be concerned about. The mortgage mess is huge and even when you have "good" buyers the mortgage company has so many hoops to jump through, it's not funny...and it may all fall apart at the last minute anyway.

And...Yes. If you can't get ALL Cash it's nice to see as much of a down payment as possible. It's more likely they'll get the financing they need and get to settlement than the 3.5% down payment buyers asking for a Seller Credit, etc. No brainer.

Regina: Great idea for a post and congrats on the feature. I agree with everything you say. One alternate point . . . especially with regard to short sales: Cash offers are powerful, but NOT powerful enough to make the bank move along more quickly. So, sometimes the cash offer will back out and go somewhere (select another property) where they can close more quickly. If accepting a cash offer on a short sale, I would recommend holding multiple back up offers. I've seen a number of cash offers fall through at the last minute in short sales transactions.

I have had the pleasure of doing about 6 all cash transactions last year- they are so great and they do really help with the negotiating....especially if the house they are buying is already vaccant.

cash is king. I have seen some of the best buys happen in the last short period of time for buyer who could pay cash.

Great info!

Ah, but the real question: What to do when the cash offer is lower and the financed offer is higher? How exactly do you place a price tag on all of those risk factors that you mentioned in this post?

Do you automatically give up $10k on your price, just because the financing offer is risky?

Well, I sure wouldn't. But then, like any mortgage person, I know how to figure out if that buyer is going to be able to get a loan. And if it was my $10k (or the $10k of my client) I would sure spend some time to figure this out.

I had a casher buyer last year, the only problem was the title issues. It took 4 months to clear.

Regina - very good post and very good points you have made here. It is true that cash buyers have many less restrictions with a purchase.

Cash is still king, congrats on the feature!

Good featured post today....Cash is the king as the above commenter says. You can't knock cash. The color is great...GREEN and you can nevery have enough of it..

Patricia Aulson/Portsmouth NH Real Estate

I would add, make sure you get proof of funds. We just had a cash offer fall out that was submitted and no proof of funds. We were promised in for over a week, it didn't come. The seller said fine, and you lose your deposit since there was no contengency. This seller didn't need to sell quickly so he could wait it out. Most can't. Make sure you get this.

I am all over the 'proof of funds'. We had a lot of 'cash' offers from 04 to 06 and we quickly caught on to what they were doing. They are popping up again but too many folks are getting away with that silliness.

Great post for sellers and buyers............nicely writtten!

Definitely need to have proof of funds on cash offers. But doesn't this scenario only apply to investor buyers, or people who are looking to buy low-end properties who actually have the cash on hand to buy? Where does that leave people who don't, and the millions of sellers whose properties and prices don't allow for them to take cash offers?

Hi Regina -- YUP "money talks" as they say! The proof of funds, or verification of funds is JUST as important as the pre-approval! Thanks for your post!

Regina, Congrats on the Feature. Very well written. Who doesn't love a cash buyer in these times? But, proof of funds and verification is key.

As Eric Villaverde says about the "Golden Rule" above: "Whoever holds the gold makes the rules". This is true in every industry and every culture.

As I stated in the blog, ALWAYS get proof of funds. Some buyers who may say they have cash, don't; while others may spend it all before escrow closes.

Hi Regina -- Wow, what a very comprehensive analysis, and great advice for sellers (and agents), thanks! :-)

Good post with lots of valuable info. I'm going to recommend this to a couiple of new agents in our office.

Kathy

Regina - this was an informative post about the advantages of cash offers for the sellers. We are certainly seeing more of these, especially on the REOs. These deals are often winning even in cases where the purchase price is less than some of the financing offers. Makes it tought for some folks.

Jeff

Jeff, I agree that the cash deals are becoming more frequent. Which is great for the investor, but as you brought up, it makes it tough for first-time buyers with mega-financing (FHA etc.) to get their offer accepted.

Regina - Congrats on the feature and very well done post, short, sweet and full of information.

Of course a cash deal is better especially if you have proof of funds and a non refundable deposit!

Good job of laying it out! I have gotten CASH offers on my listings in the past where I got a call from the buyer agent asking for an extension because the lender needed more time! I was like...WTH???? I told them they wrote a cash offer...and they responded with "but it's cash to your seller!!!" Gimme a break!

Thanks, Jeremy & AR team for featuring this blog post! I appreciate all the great AR members who stopped by to comment. I enjoy hearing your additional points of view and learning from you.

Great job, Regina!

Very valuable info.....I have not had very many cash buyers (I keep hoping!!), but you mentioning the fact that the seller can request a non-refundable earnest money deposit was really helpful.

Anything we can do to bring our clients to a smoother & quicker close is what I am all about!

Edith Schreiber - Dallas, Texas

Regina: What a great post. As they say.. Money talks and B.S. walks...

In this day and age, I think it may make more sense to take slightly less net if the offer is all cash for all of the reasons you listed above.

MAY

Regina, Thanks for laying it out so clearly. Very understandable for the reader. Many sellers don't understand the difference and why a lower dollar amount in cash may really be more beneficial to them.

Great post. The markets are tightening and cash isn't as kingly as it was three months ago, but I'd still rather have a cash buyer than someone with on ly 20% down payment.

So true, I had a buyer who was going to pay cash for a condo.

They took the offer at less with financing, he was going to net 200.00 more.

I saw it on the market again.

I called, it fell through.

My client had bought already.

Missy, that is very typical for financed purchases lately... it seems like the fall-out rate is close to 50% due to (mostly) the tough bank regulations.

I just wrote an all cash over on a new construction condo and tomorrow I am writing an all cash offer on a foreclosure. Shows the range of where the cash speaks!

MAY

Cindy, you GO girl!!!

Oh, and another great thing about non-financed offers: it doesn't have to be completely built. For instance, right now there are some houses in which the contract never finished construction and therefore cannot get a COO (Certificate of Occupancy) so conventional/FHA/VA lenders won't lend on it. The only possible offers are all-cash.

JUN

Marcus said - cash is king, but I sure did get frsutrated with Chinese buyers who expected that becasue they were paying cash here in the states, they would get a huge discount on price. Evidently that's true in Beijing - but not here, I kep telling them

Janice, every culture is a little different... but most countries abroad DO expect to negotiate heavily. In their culture, they highly overprice things so that they can negotiate down.

AUG

Regina - I believe that an all cash offer should always trump financing, because of the many things you discussed in your post. Great job.

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