4 Reasons Why Cash Offers on a House make Better Deals

by Jeff Lichtenstein – Broker and Owner of Echo Fine Properties

Cash deals are better deals for a Seller. First, most Sellers need to understand why a cash offer in Real Estate is better than an offer contingent on a mortgage. Agents need to explain this to our Buyer clients, and also develop strategies so one doesn’t lose out to a competing cash offer.

Sellers often don’t understand the advantages and reasons why a cash offer is better than a mortgage offer. The differences are significant and oftentimes I advise Sellers I represent to take an offer that is cash over a mortgage contingency offer – because it’s more of a sure thing. A cash offer is better for a Seller for the following reasons….

1. Shorter Approval Times

You aren’t waiting the typical 30 days for approval like your Dad’s loan. Approval can be anything from the house appraising at whatever the appraiser values it, or the credit worthiness of the Buyer, and a whole host of other things. Even still, firm approvals are never 100% approved. A year back we had a solid deal on a home and a day before closing, the deal died, because the Buyer lost his executive job with Toys R Us. Employment is a key condition to closing.

2. Market Value and Appraised Value don’t Jive

Homes that may have a better market value or newly remodeled may not appraise out. Appraisers are always looking at past results (like looking at a distant star). Oftentimes, the real market value is higher, but appraisers have limitations on how high they can go. In these situations, Real Estate cash offers end up beating out mortgage buyers because a cash buyer can pay the true market value. Funny enough, the cash buyer ends up setting the new market value.

3. Less Negotiating Room

If a home doesn’t appraise out due to a bad appraisal or just an inability of the appraiser to put it at market value, the Buyer (if they still want it), usually tries to negotiate the price down. And the Seller is then at risk of losing the deal, wasting the time involved, and then dealing with the possible stigma that something is wrong with the house. Sometimes Buyers recognize that, and a deal can be made that ensures the Buyer will come out of pocket if the house doesn’t appraise.

4. Convert the Mortgage Approval to 10 Days

A Seller has options when dealing with a good mortgage offer competing with a cash deal if the mortgage deal is at a higher price. Cash offers on a house usually have a 10-15 day inspection period out. If that’s the case, it’s best to ask the mortgage purchaser to get their deal done in the same 10-15 days. That way both outs are more equal. If I’m representing the Buyer, I make sure all their paperwork is in beforehand so that we can get it done in 10 days and compete with the cash offer.

10 Step Guide to A Great Seller Transaction

The Bottom Line

Overall though, it’s best to look over all terms of the offer, the true interest of the parties (a cash offer with a ‘nervous-nilly’ buyer who can cancel in the inspection period isn’t a sure thing) when making decisions. And then to work the mortgage offer to see if it can be completed faster, or if you can build in that the Buyer will come out of pocket if the deal doesn’t appraise.

Contact Jeff with any questions or for more information:

☎️ 561.346.8383

✉️[email protected]