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

By
Real Estate Broker with California Coast & Country Homes, Inc. BRE 01895773

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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Text copyright © 2009 R.P. Brown, All Rights Reserved

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Regina P. Brown
Broker, Realtor®, e-Pro
California DRE # 00983670
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Topic:
Home Selling
Location:
California San Luis Obispo County Paso Robles
Groups:
ActiveRain Carnival of Consumer Content
Advice for Sellers
For Sale By Owner
Realtors®
FREEDOM Office: Professionals Working from Home
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all cash offer
investment property
real estate investor
buying and selling investment condos
regina p brown
california
san luis obispo

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Rainmaker
466,935
Janice Roosevelt
OICP ABR, ePRO,Ecobroker
SUSAN MANNERS TEAM, Berkshire Hathaway Home Services Fox & Roach
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
June 02, 2009 07:45 AM
Rainmaker
379,450
Regina P. Brown
e-Pro Realtor
California Coast & Country Homes, Inc.

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.

June 02, 2009 09:53 PM
Rainmaker
215,493
Troy Erickson
Your Chandler, Ahwatukee, and East Valley Realtor
Terra Solis Realty, LLC www.ChandlerRealEstate.weebly.com

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

August 10, 2009 05:40 PM
Anonymous #55
Anonymous
Lea

I am saddened by the posts above.  I understand the reasoning behind cash offers being better, but it leaves me feeling hopeless.  I am trying to buy my first home, I have great credit and have been pre-approved by 2 different lenders.  I put an offer on a home that I truly fell in love with, and they accepted a cash offer instead.  I understand the appeal of the cash offer, but what hope do I have if cash always trumps?  I am heartbroken at losing the house and wish my offer could have been taken more seriously.  I am buying well under what I can afford, I am fantastic with my money, and have a good down payment.

Any advise on how to get sellers to look at my offers more seriously, or will cash always win?  Are there key things to say or show that will make a seller more confident in a financed buyer?

November 19, 2010 03:42 PM
Rainmaker
379,450
Regina P. Brown
e-Pro Realtor
California Coast & Country Homes, Inc.

Lea, CASH IS KING.  That is a life truism. You and I cannot change that basic business operating principle.

However, there are 2 parts to every offer: PRICE and TERMS.  Since you don't have all-cash (most buyers do not), I suggest that you make the offer price higher, and the terms more favorable to the seller.  Find out what the seller wants, and think of how you can get that seller more of what they want.  For example, longer escrow period, buying their furniture from them, offering to do a lease-back, etc.  Ask your local Realtor for help in structuring your offer to make it more palatable and to compete with the cash buyers.

Good luck!

November 23, 2010 03:14 PM
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Rainmaker
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Regina P. Brown

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Top California Broker and Realtor Regina P. Brown writes articles and blogs about local real estate trends, houses for sale, and tips for home buyers.