Should I Accept an All-Cash Offer for My House?

You’d think it’d be rare for anyone to have enough cash lying around to pay for a house outright. We’re talking hundreds of thousands of dollars for most Americans looking to buy a house. But in the current housing market, 29% of buyers are making all-cash home purchases, according to a recent report from the National Association of Realtors.

“Cash offers are very common in today’s market,” explains Saad. “A little over 50% of the listings we deal with [in his Michigan market] end up selling with cash terms.”

Real estate investors — who can be small-scale business owners or house-buying company conglomerates — are another reason why all-cash offers make up such a big chunk of the market.

Many investors can afford to offer you a reasonable all-cash price and still make a profit when they sell because they may get reduced rates on everything from home repairs to title company fees. And making all-cash offers benefits investors because they can close on home sales much faster, which decreases the time they need to reap a return on their investment.

However, other investors or “we buy houses” groups will make cash offers well below a home’s market value.

When are cash offers used in real estate transactions?

When considering an all-cash offer on your home, keep in mind that there are multiple scenarios and types of cash buyers. Some are experienced investors who’ll have a system set to expedite an all-cash sale. Others may be one-time buyers who may expect traditional protections like an inspection or appraisal contingency — meaning the deal depends on a successful inspection or an appraisal determining an expected level of value.

Here are the types of buyers most likely to make an all-cash offer:

• Home flippers: Experienced investors who regularly renovate and sell homes for profit, who are less likely to require contingencies.
• Buy-and-hold rental investors: Experienced investors who purchase properties to convert to rentals, who are also less likely to require contingencies.
• We buy houses groups: These house-buying companies have gained popularity in recent years, typically offering less than market value but providing remarkable speed to close a sale with no contingencies.
• iBuyers: These tech-focused all-cash buyers are national online real estate companies that use algorithms to calculate an offer for your home. They typically pay more than “We buy houses” companies.
• Wealthy buyers or retirees: Buyers with enough money to purchase a second home and/or dabble in real estate investment. Since these are often first-time all-cash buyers, they are more likely to ask for some contingencies.
• Equity-rich homeowners: Homeowners who have converted equity to cash by selling their previous home. Again, these are typically first-time, all-cash buyers likely to request some contingencies.

Regardless of which type of buyer makes you an all-cash offer, you need to make sure that they have access to the cash to follow through. Flowers explains, “A legitimate cash buyer should have the ability to show you that they have the funds readily available or at the very least present a letter from a reputable cash lender that you can verify.”

The main difference between these types of offers is the source of the funding to purchase the house. Cash offers indicate that the potential buyer has the funds available in a bank account or something equivalent to cover the entire purchase price. Mortgage offers indicate that the potential buyer requires a mortgage loan in order to cover the purchase price.

There are several important differences in the home sale transaction process depending on whether the buyer is paying with cash or seeking a mortgage.

Length of the transaction

Selling a house takes time. But to a large degree, how long it takes depends on the buyer’s source of financing. Mortgage transactions can take up to two to three months, while all-cash transactions can be completed in as little as five to seven days.

Steps in the transaction process

There are many steps in the home-selling process. In a mortgage transaction, there are several additional steps needed for the lender to release the funds to the seller for the purchase of the home. These include requiring an extensive buyer application and underwriting process, a lender-initiated appraisal of the home’s value, and the addition of a due diligence period, appraisal and financing contingency in the contract.

In a cash transaction, there are significantly fewer steps to complete the transaction. There certainly won’t be any steps relating to a mortgage application or underwriting. And while many cash buyers will still want some time in due diligence to perform an inspection, many won’t require an appraisal.

Closing

Both mortgage and cash transactions will involve a title and escrow company, to verify proof of funds and other important documentation, purchase title insurance, set up the escrow, and ensure there are no outstanding liens on the home. For a cash transaction, the funds may post a bit sooner than through a mortgage transaction, depending on how quickly the lender releases funds after closing.

Cash sales are quicker and less stressful, quite frankly because you don’t have to worry about the appraisal or the mortgage company having any hiccups throughout the process.

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  Alex Saad Real Estate Agent

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  Alex Saad Real Estate Agent at Remax Team 2000

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  • Years of Experience 16
  • Transactions 411
  • Average Price Point $168k
  • Single Family Homes 380

What are the pros and cons of a cash offer for sellers?

Pro: Less risk and uncertainty

The bevy of hurdles attached to obtaining financing (third-party appraisal, underwriting delays) are all solved with the mighty all-cash offer. The National Association of Realtors (NAR) reports that around 6% of purchase contracts encounter delayed settlements due to appraisal issues alone.

“Cash sales are quicker and less stressful, quite frankly, because you don’t have to worry about the appraisal or the mortgage company having any hiccups throughout the process,” explains Saad.

A traditional home sale to a mortgage buyer seems safe because it’s the most common type of residential real estate transaction. However, it inherently comes with a number of risks. If the buyer loses their job or their mortgage falls through for some reason (such as if the house doesn’t appraise), then the deal could fall apart. That’s not an issue with all cash.

And there’s also the risk that your buyer will find additional repairs they want to be completed after they obtain their home inspection. Though this is possible with all-cash buyers, it’s less likely.

When you accept an all-cash offer, either the market is hot enough that the buyer won’t dare risk the sale by asking for inspection concessions, or a savvy investor understands the home is being sold “as is.”

Pro: Goodbye (to at least some) contingencies:

An all-cash sale lets you say good riddance to a lot of contingency stress associated with a mortgage-backed sale.

You’re not going to have to deal with a financing contingency, which lets a buyer back out if they cannot finalize their mortgage. The absence of a mortgage also means that your all-cash buyer probably won’t need an appraisal contingency.

“An appraisal is a requirement that banks have before granting a loan on a property. So buyers paying with cash or getting a hard money loan, which functions as cash in this capacity, don’t need to have an appraisal on the house,” explains Flowers’ business partner, Damian Barton.

If your cash buyer still opts to get an inspection during due diligence, the process will typically be a lot less taxing on the seller. The buyer won’t be obtaining an inspection to satisfy any mortgage requirements, and they likely won’t be using it to nickel-and-dime you.

Finally, the buyer probably won’t need to utilize the home sale contingency (a contingency that lets the buyer back out if their current home doesn’t sell within a specified timeframe) because an investor’s purchase isn’t dependent on the sale of another property.

Pro: Faster and more flexible closing

One benefit to accepting an all-cash offer is having more control of the home sale timeline because you aren’t at the mercy of the buyer’s lender’s schedule.

“If your buyer is getting a mortgage on a house, the timeline can vary, says Barton. In the current market, it takes the average financed homebuyer 47 days to close on a purchase loan. “But the timeline with a cash buyer is a lot more flexible,” says Barton.

“Cash sales usually close within about a week, but if you need more time, a cash buyer can extend that at closing out for 30 or 60 days, or even longer depending on what the seller’s needs are.”

A fast, flexible close isn’t just convenient; it can also save you money.

“A quick close that doesn’t require 30 to 45 days to finalize also saves the seller money, because they won’t need to pay the mortgage and other housing expenses on the property for an extra month or more,” advises Flowers.

When you’re selling a house for cash, you’ll still need escrow services and a title search. But since there’s no lender involved, you may have more control to shop around for affordable escrow services. And if you’re selling to an experienced all-cash investor, you may not even need to do that.

“Oftentimes, cash buyers are willing to cover the title and escrow costs for the seller,” explains Flowers. “This is because cash buyers are often investors who have an agreement with the title and escrow company that allows them a discount that’s called an investor or a builder rate.”

Con: Cash may be lower than other offers

Typically, the sales price for most cash sales is going to be lower than what you’d get from a mortgage-backed buyer. Some cash buyers, like flippers, may offer substantially less than market value.

“In general, if someone’s going to pay all cash for your house, you’re going to have to give up something in return, which may impact what you’re going to net on the sale price,” explains Barton.

And even if it turns out that you’ll net less than you would with a traditional home sale, don’t forget to factor in less tangible benefits. An all-cash sale comes with the convenience of a quick close, as well as the fact that you can forgo the appraisal and possibly the inspection.

“When there are multiple offers, I often advise my clients to take the cash offer even if it isn’t the highest offer because of all the other benefits,” explains Saad.

Con: You may feel rushed

Because cash transactions are so quick, you may feel overly rushed as the seller. If you aren’t prepared to move out within one to two weeks, you may need to be careful accepting an aggressive cash offer.

Additionally, if you are selling the home to turn around and purchase another, you may get into a position where timing the two transactions is difficult, leaving you without a home for a couple of weeks. Sometimes, you can arrange with the buyer special terms to rent back your home after it closes, but that won’t always be an option.

What are the pros and cons of cash offers for buyers?

Cash offers aren’t only better for sellers, but they also give buyers an advantage as well.

“Cash is king. If you have cash, you’re just gonna end up getting a better deal,” says Saad. Especially in hot markets where more and more buyers are making cash offers, sometimes not having cash can be a huge disadvantage.

In some cases, such as needing to relocate for a job, divorce, or selling a property for an estate, you may need to move faster than the pace of your current housing. A trusted platform like HomeLight’s Simple Sale can help you find a cash offer fast.

When making decisions about what is likely your largest financial asset,  it’s important to compare the pros and cons of requesting a cash offer on your home — and then do some math to see how much money you’d likely take home at the end of the day. Our handy net proceeds calculator can help you account for all the fees associated with selling.

It’s also wise to talk with an experienced real estate agent to get a comparative market analysis, which offers a data-backed estimate of how much you might get from a traditional home sale. Your agent will also go over with you all of the costs of a conventional listing, including home prep, repairs, agent commission, and closing costs.

“Each seller has to look at all the options to decide whether it’s smarter for them to list the house for sale or take an all-cash, off-market offer. The first place to start in making that decision is meeting with a real estate agent who can go over all of the numbers,” suggests Barton.

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