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What Constitutes an All Cash Sale?

By
Real Estate Agent with Realty ONE Group Mountain Desert DRE #SA554748000

I have a transaction in which I am representing the Buyers. The Sale is for around $200,000. The Buyer is paying $160,000 down in cash and is planning to get a mortgage for only $40,000. The lender who was expected to do the mortgage did not do anything to start the mortgage paperwork. The Buyers told me they would pay the other $40,000 cash but did not tell me the source of the additional funds were to come from a second mortgage or refinance on their existing home.

This escrow is scheduled to close in about 10 days. It looks like the refi/second will not happen in time to meet the closing date. The close of escrow date could have been met if the Buyers did in fact have the $40,000 to close.

Here in Arizona an "All Cash Sale" is really all cash and not cash to be obtained via any form of loan. We have an Addendum that is required to indicate an all cash sale. This addendum has a requirement for the Buyer to show proof of funds to close.

Using Cash from a Second Mortgage is NOT a Cash Sale.

In another instance, I was representing a Buyer who told me "we will pay cash."  After showing them houses for three days and after they had found a house they liked, I thought we would write an offer. It was then that they told me they would pay cash -- after they sold their other house.

If you have to sell another home, it is NOT a Cash Sale Yet.

In a third instance, the Buyer offered to pay a good price for a vacant lot and expected the owner to carry. After the contract was accepted, it was discovered that the owner-carry would not work because the Seller could not settle an existing mortgage. The Buyer did finally made a cash offer to buy the lot, but that offer was only 62.5% of the price originally negotiated.

This one became a true cash sale with a humongous cash discount of 37.5%.

Comments (12)

Edward & Celia Maddox
The Celtic Connection Realty - Queen Creek, AZ
EXPERIENCE & INTEGRITY - WE TAKE THE HIGH ROAD

That is a misrepresentation of a cash sell.  We have an Addendum in Arizona that indicates: All Cash sale, and buyer has to sign this as part of offer if indicating all cash sale.

Aug 13, 2012 07:28 AM
Laura Allen, Lake Tahoe - Truckee Real Estate for Sale TahoeLauraRealEstate.com
Coldwell Banker Realty, Tahoe City, CA (530) 414-1260 - Tahoe City, CA
Tahoe Real Estate Agent Helping Buyers and Sellers

John - Excellent information for buyers to be aware of.  Cash is just that - cash.  Great post!

Aug 13, 2012 07:31 AM
Kathy Stoltman
Balboa Real Estate - Ventura, CA
Ventura County Real Estate Consultant 805-746-1793

It appears that some of the facts have been left out by the buyer wanting to refi for the $40,000.  It can't really be called "an all cash" offer until "all the cash" is in hand. Full disclosure would have been very useful.

Aug 13, 2012 07:32 AM
Beth and Richard Witt
New York, NY
The best Retired Brokers !!!!

"Proof of funds"  No proof no deal... Happy Evening..

Aug 13, 2012 07:32 AM
John Mosier
Realty ONE Group Mountain Desert - Prescott, AZ
Prescott's Patriot Agent 928 533-8142

Edward and Celia -- I am in Prescott, Arizona, so I know about the Additional Clause Addendum. This transaction started with mortgage financing but when the morgator did not act, the Buyers elected for the re-fi thinking it would be cash to the Sellers. There was no misrepresentation but a misunderstanding on the part of the Buyers.

Aug 13, 2012 07:35 AM
John Mosier
Realty ONE Group Mountain Desert - Prescott, AZ
Prescott's Patriot Agent 928 533-8142

Richard and Beth -- You are technically correct. In this case, both the Buyers and the Sellers want to do the deal, so we will cure it with an appropriate addendum as soon as I get enough details from the lender who is to do the re-fi.

Aug 13, 2012 07:37 AM
John Mosier
Realty ONE Group Mountain Desert - Prescott, AZ
Prescott's Patriot Agent 928 533-8142

Kathy -- We will get this resolved with an addendum. Both the Buyers and the Sellers want this deal to go through.

Aug 13, 2012 07:39 AM
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

John, I hate to say this, but when the buyers told you they would be paying the remaining $40,000 in cash... if it were me, I would have pressed them for proof of the source of that cash.  Is there any reason that you did not do that ?

You said that the buyers "did not tell you" the source of that cash.  Did you ask them?  I would never have thought you would have been that "timid."

In case number two... where the "cash" was coming from the sale of another home.  Again... when they said they were going to pay "cash"... I would have pressed them for the source of that cash, and would not have proceeded until I had that information.  Their "we're paying cash" transaction was actually a contingency.

Back to case number one.  I have not checked recently, but I am not sure lenders will make mortgage loans for an amount as low as $40,000.  For some reason, I thought the lower limit was $50,000.  I will need to re-verify that.

Aug 13, 2012 07:59 AM
John Mosier
Realty ONE Group Mountain Desert - Prescott, AZ
Prescott's Patriot Agent 928 533-8142

You are right, Karen Anne.  I should have pressed harder for the source of the cash. Indeed, I should have pressed the other "Buyer" for the source of his funds, also.

The mortgage broker told my Buyers he would do the $40,000 loan but did not do his job to start the paperwork.

Aug 13, 2012 08:15 AM
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

John... not to worry.  Sometimes... all you can do is all you can do.  Hope I didn't sound like a know-it-all in my comment.

Have a great week!

Aug 13, 2012 10:33 AM
John Mosier
Realty ONE Group Mountain Desert - Prescott, AZ
Prescott's Patriot Agent 928 533-8142

Things may not always be as they appear at first glance.  I showed the party with the $40,000 loan around 30 to 40 homes over the course of more than a year, even going to many of them ahead of time and taking pictures of closets and other details. I wrote six contracts for them and this is the first one that looks like it will go through. After this much time with them, I was not too concerned about where the additional cash was being obtained. I was simply relieved to have an escrow that looks like it will close.

Aug 14, 2012 06:28 AM
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

John... that's great.  I am sure you will be very relieved to finally have this one over and closed.  And... besides being paid a commission... just think about all the extra time you'll have available each week!

Great job.

Aug 14, 2012 08:30 AM