3 Major Reasons Home Sellers Choose the Cash Offer

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You probably know sellers love all-cash offers. But did you know in the luxury market, an all-cash offer improves your likelihood of success by a whopping 438%, according to bidding-war data collected by Redfin?

Cash sales made up 22% of sales in December 2018, which is up from 20% the year prior, according to data from the National Association of Realtors.

Yes, cash offers can certainly make your housing market even more competitive. But we have good news: You can still compete in a market where cash is king—even if you don’t have the money sitting around for an all-cash offer, or you simply want to go the mortgage route with your next home.

To help inform and strengthen your bid, it’s good to understand why sellers love all-cash offers. Here’s what you’re up against:

A table where a seller chooses a cash offer.
Source: (The Creative Exchange/ Unsplash)

1. Cash offers are more likely to get to the closing table

Even if you’re a well-intentioned buyer who’s determined to get to the closing table, and do so quickly, surprises can inevitably pop up during the financing process and slow down the deal or stop it altogether.

In fact, financing problems account for 37% of delays, according to the National Association of Realtors. Even after the pre-approval process, mortgage loans can be denied for a variety of reasons, including a change in your employment, taking on additional debt, a drop in your credit score or a change in lender guidelines.

Meanwhile, financing problems aren’t an issue whatsoever for all-cash buyers.

2. Cash deals close more quickly

Not only does an all-cash offer tend to be seamless, but it also helps a home sell faster. It can take 40 to 60 days for a sale to close when the buyer is being approved for a mortgage.

Even when a buyer is pre-qualified, the buyer’s financial documents need to be reviewed and verified and the loan needs to be underwritten.

Cash sales, on the other hand, can close within a few weeks. That may save the seller a mortgage payment and appeal to sellers who are looking to move into their next home quickly, or who have already made the move and are eager to sell.

3. Cash buyers aren’t affected by financing contingencies

The majority of sales—about three-quarters, according to the National Association of Realtors—have contract contingencies. Contingencies in real estate mean certain terms need to be met before the sale can be finalized. Among some of the most common contingencies are obtaining financing and acceptable appraisals.

For example, sometimes appraisals come in less than the sale price. Lenders want to evaluate the home’s market value to be sure the buyer isn’t attempting to borrow more money than the house is actually worth. If an appraisal comes back less than the agreed upon home sale price, it can sink the deal if the buyer doesn’t have enough cash to make up the difference.

Meanwhile, all-cash buyers don’t have to worry about financing or appraisal contingencies since they’re not working with lenders.

If you’re competing with cash, removing contingencies could be a strategic move. Since it’s important to know the associated risks, it’s a good idea to talk with your Realtor and lawyer beforehand and make sure your lender will back you up if you decide to remove contingencies.

Header Image Source: (Pepi Stojanovski/ Unsplash)