Is Cash Really King?

Since there are so many variables in real estate that is not a simple yes or no answer. Cash definitely has advantages, but believe it or not, a financed offer can still beat out a cash offer.  In some transactions, but not all, cash will be more attractive than offers that require financing.  To understand why, you need to analyze all parts of the transaction.

When any offer is accepted and contracts are signed, there will be some money held in escrow until the home closes.  While the amount of money left in escrow is a consideration when accepting offers, this is not usually a make it or break it point for cash vs. financing. 

When would cash sway a seller?  Cash does have advantages, some of them being: a home appraisal is not required, no waiting for a commitment letter to be issued by a lender (even with pre approvals, there may be circumstances where a buyer is ends up being unable to secure the loan), and no repairs that a lender may require.  Some lenders may require some repairs be made, especially if it is an FHA loan rather than a conventional loan. Missing COs, open permits that may be difficult, expensive, or time consuming to close out, can also make a cash offer more advantageous to a seller since a lender may not mortgage a property with open permits. Cash can close quicker most times as they are not waiting on a bank, however they do still need a clear title.

Terms are important.  Some buyers will waive a home inspection and say they will take the house as is, while a home inspection may turn up something a buyer would want repaired or given a credit in lieu of repair.  Depending on the homes condition, waiving a home inspection could be a huge plus to the seller and mean more than a cash offer, or not really matter. Also a buyer who can close on the seller's timeline is an advantage that could possibly beat an all cash offer.

With that being said, if a home is not in need of any major repairs, has all town required CO’s in place, no open permits, and the seller is in no hurry to move, cash will be attractive, but probably not attractive enough for most sellers to take significantly less money than another offer.

In my experience, the reason I see most often for a cash offer being beat by a financed one is that the cash offer came in significantly lower than the financed offer.  I recently experienced that situation.  All terms were basically the same, nothing to sell, willing to close at seller’s convenience, having a home inspection done, escrow amount similar.  The cash offer came in at $20,000 less than an offer using a conventional loan.  The seller went with the offer that was $20,000 higher.  Had it been a difference of $10,000 the seller was likely going to take the cash offer…

I hope you find this information helpful.  It would be impossible to include every possible scenario of cash offers to evaluate. Each home and every seller’s situation is truly unique, and all offers, terms and conditions have many variables.  As a licensed real estate broker, I strive to ensure my buyers to make their offers competitive and I help my sellers effectively analyze and compare each offer that comes in.  If you have questions, please feel free to get in touch!