A cash offer in real estate is just as the term implies: An offer to purchase a property and pay in cash, no financing necessary. (For practical purposes, buying a house with “cash” involves a bank check or wire transfer… so erase that suitcase-full-of-money image from your brain).
Cash offers aren’t as common as traditional financing, but they do make up a decent share of the market. As of March 2020, nearly 20% of real estate transactions were all-cash sales. Whether you’ve already received a cash bid for your home or are considering selling your home to a cash buyer, let’s review the basics of the mighty all-cash offer.
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Case study: Six offers, one of them cash
Take the story of real-life seller Mark Peters.
Peters bought a house in Milwaukee, Wisconsin in 1987. He lived in the home for 20 years and, as life went on, the time came for him to move.
Rather than selling, Peters agreed to rent the house to one of his daughters for the next five years. He was ready to let go of the property when she moved out — until his other daughter spoke up about wanting to rent it with her partner. Once again, Peters agreed. The couple moved in, and would be another 8 years before Peters was ready to sell.
Unfortunately, by then, the house had some issues. The basement was the most notable pain point. While Peters did put some money into the cleaning and aesthetic improvement of the house, he wasn’t eager to spend thousands of dollars on a basement renovation.
In Wisconsin, sellers are required to disclose any adverse conditions that could affect property value or potentially compromise occupant safety. With the help of top real estate agent Pat Tasker, a 31-year veteran of the industry with Shorewest Realtors, Peters was able to spruce up and list his house while remaining in full compliance with regulations.
The first day on the market, Peters’ home had 18 showings and received six offers; one of which was a cash offer.
What’s telling is this: Peters ended up going with the cash offer, despite it being lower than some of the other offers on the table.
Is a cash offer better than a regular offer?
“Better” is subjective, but there are definitely advantages to selling your home for cash, which include:
- Increased certainty that the buyer is willing and capable
- Inspections may be waived
- Fewer concessions requests, like repair allowances or covering buyer closing costs
- Fewer contingencies, like financing, appraisal, or the buyer having to sell their existing home before closing on yours
- A faster closing process overall
When should you consider a cash offer?
Cash is especially worth considering when you’re in a situation like Peters, with a house that is vacant and in need of repairs; or if you find yourself needing to sell fast, perhaps in the wake of job loss or a family emergency.
Despite common preconception, a cash sale doesn’t always mean getting the short end of the stick. “People think cash is going to be a lower price on the house and that’s not the case,” says Griffin. “You just have to decide what you’re going to sell for.”
It’s true that in many cases, sellers are willing to accept a lower price in favor of a faster, easier sales process. Foregoing a home inspection can be a huge relief to a homeowner with a troublesome property. Once an inspection report is in hand, you must then disclose those findings to potential buyers if your current buyer chooses to back out of the sale.
In Peters’ case, the cash offer he accepted was just slightly below his list price, which ended up being more favorable than the traditional offers he received, even one that came in 20% over asking.
“[The cash offer] was no inspection, closing in two weeks, and no financing,” said Tasker. “So, he was like, ‘Well, I could take these higher offers,’ but he couldn’t take the highest as [the house] was never going to appraise for that much, and FHA would just have a million work orders on the house [to finance], so he went with the cash offer that was almost at asking price.”
Who makes cash offers in real estate?
Cash offers often come from investors, or other folks looking for a project home to renovate for rental or resale purposes. This is convenient for sellers, as these types of buyers are not only able to move quickly through the transaction, investors are present in all market conditions.
“They’re buying properties that they can cash flow; properties that fit their financial model,” says Griffin. “There’s always investors in every market. No matter if the market is low or high, there’s always going to be an investor who’s going to pay the right price for the home.”
When it comes to receiving a cash offer for your own home, working with a skilled real estate agent is always a great start. A knowledgeable agent will help you determine the best price point and marketing strategy to appeal to investors and other cash buyers, while ensuring that you’re on the up-and-up with property disclosures and any possible inspections. A real estate agent may also be able to connect you directly with cash buyers in your local market.
What if I’d rather avoid listing my home on the market?
That’s an option, too.
Many investors will prefer to (or only) make an offer on your home if it’s off-market. Many cash buyers like buy-and-hold investors, house flippers, and iBuyers (“instant buyers”) fall into this category.
This option may prove particularly useful if you need to sell your home fast. One option is to use a platform like Simple Sale™, HomeLight’s own iBuyer network, to get a cash offer.
Simple Sale™ puts your home in front of pre-approved cash buyers, and you’ll receive actionable offers within 48 hours. Just fill out some information about your home and location and we’ll determine which iBuyer is the best match for you based on their past transaction history, target price range, and the types of properties they’re historically willing to purchase.
From there, you can compare what you’d get for your house by selling to an iBuyer against an estimate of what your house would go for on the open market. There are no fees to request offers through Simple Sale™, and you’re under no obligation to accept any of the cash offers you receive on your home. Whether you’re just curious or in a must-sell situation, Simple Sale™ is an easy way to explore your options.
So, what’s the catch with cash offers?
In most cases, the biggest potential downside of accepting a cash offer is that you may fetch less money for your home — investors are driven by profit margins, while traditional buyers are driven by emotion.
If your house is in good shape and you’re not in a rush to sell, having the luxury of time may allow you to field offers until the perfect one comes across your desk.
On the other hand, if your need to sell is urgent, or if the property in question is likely to need more repairs than you have money or time to manage, a cash offer can be more than a way out — it can be a huge relief.
“[With the higher offers], I could have done better,” says Peters, of his Milwaukee house. “But that was a gamble. And I did not want to take a gamble.”
Know your options, then do what’s best for you
Working with a real estate agent may still be the best way to expertly price and position your home within the local housing market, but iBuyer platforms like Simple Sale are providing an additional option to sellers who may be pressed for time, cash, or just want to get through the sales process with as little hassle as possible.
Regardless of the circumstances, selling a home is a big undertaking. It’s important to do your research and familiarize yourself with available options, but when it comes to the speed and ease of a transaction?
It’s just like the old saying goes: Cash is king.
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