Are cash offers better for sellers?
No matter the listing price, in todays strong sellers market, you may find yourself getting at least one cash offer. In March 2021, 23% of home buyers (including real estate investors) financed their purchases with cash, according to the National Association of Realtors. That depends on the offer  and the seller. If youre looking to sell your house fast or dont want to deal with contingencies, a cash offer may be ideal for you. But if you might need more time to find a new home or want to be sure youre maximizing your profits, you could be better off with a mortgaged buyer. It really comes down to the details of the offer, not just where the buyers getting their funds. Traditionally, cash buyers tend to be concentrated at either extreme of the housing market. On the low end, youll see house flippers and investors buying homes that might not qualify for a mortgage due to condition, price or both. At the higher end, there will always be buyers who dont need a mortgage. That may be because they have plenty of equity from a home sale, they received a gift or loan from a family member, or simply by virtue of being wealthy. In the current market, however, more and more average home buyers are paying cash. With housing inventory tight and buyer demand high, paying cash is one tactic some buyers are leveraging in order to win bidding wars. Sellers are absolutely in heaven, says Edgardo Guerrero, a real estate agent with Century 21 Affiliated in Chicago. For every property, theres 10, 15 buyers.  If you get a cash offer from a buyer whos more or less a regular, it may go more smoothly than if youre working with a first-time cash buyer. Tasks like getting a purchase contract drawn up and securing title insurance are nothing new for them. Investors and iBuyers vs. home shoppers  The category of regular cash buyers includes real estate investors, house flippers and iBuyers. iBuyers are companies that pay cash for homes, providing an offer within days, if not hours, and allowing sellers to close in as little as two weeks. Though investors and flippers will seek out listings, you have to take the initiative when selling to an iBuyer. These buyers generally arent planning to live in the home. Theyre likely to waive an inspection contingency, because they expect to make repairs or upgrades as part of their investment. Not mandating repairs is also one way iBuyers ensure speedy transactions. Because theyre hoping to profit from buying the house, however, investors may make a lower offer than a buyer whos looking for a place to live. Guerrero notes that since tax auctions and sales of distressed properties are on pause, real estate investors who would usually pick up properties at auction have to come to the open market to get homes. That creates even more competition among home buyers, raising prices and incentivizing non-investors to consider making a cash offer. A home buyer whos buying a house with cash for the first time, whether as a primary residence or a second home, is more likely planning to actually live in the house. This type of buyer may ask for contingencies, like a home inspection. Given that theyre already putting out substantial cash on the house, theyre less likely to want a property that will need significant upgrades or require major fixes. A property thats safe, solid and move-in ready is a likely expectation for this type of cash buyer. Why a cash offer may be better than a financed offer  The prospect of a cash offer may have you fantasizing about diving into a pool of money a la Scrooge McDuck, but remember  unless you outright own your home, a good chunk of those funds will be going toward repaying your mortgage. Still, there are plenty of reasons why cash offers appeal to home sellers. Confidence in the deal going through. With cash, the buyer either has the money or they dont  if youve verified the proof of funds, you know youll be able to close. Though data from the National Association of Realtors suggests that most sales close as expected  as of April 2021, only 5% of contracts were terminated  some sellers want a greater level of certainty. The same report shows that a closing being delayed is much more common, affecting 22% of transactions over the previous three months. Faster process. Even preapproved home buyers have to get an actual mortgage approval, then go through underwriting. That can take 45 to 60 days. Closing a cash transaction can take as little as two weeks. Even preapproved home buyers have to get an actual mortgage approval, then go through underwriting. That can take 45 to 60 days. Closing a cash transaction can take as little as two weeks. Fewer contingencies. Cash buyers tend to be less likely to request an appraisal, a home inspection or other contingencies. Cash buyers tend to be less likely to request an appraisal, a home inspection or other contingencies. Simpler closing. Cash buyers should take it upon themselves to get a title and escrow company, and have an experienced buyers agent (and possibly a real estate attorney) to ensure paperwork is complete and correct. Still, without a lender involved, theres much less to review and sign off on to close the deal. Cash buyers should take it upon themselves to get a title and escrow company, and have an experienced buyers agent (and possibly a real estate attorney) to ensure paperwork is complete and correct. Still, without a lender involved, theres much less to review and sign off on to close the deal. No appraisal stress. Lenders require an appraisal before approving a mortgage, since the property is what secures the loan. When home values are rising rapidly, appraisals based on comparable home sales dont always keep pace, leaving a gap between what a buyer would be willing to pay and what a lender will agree to finance. With a cash offer  and no appraisal  the homes value is whatever the buyer is willing to pay. Why a financed offer may be better than cash  Given all of that, you might assume cash offers always win. But theres more to making an offer on a house than funding. A few variables to consider:  Whats better for your timeline. If youre in a hurry to unload a vacant home or move into a new one, a speedy closing sounds great. But if youre trying to buy while selling, you might want some extra time. Compare the proposed closing dates and timelines among offers to see which works best for you. If youre in a hurry to unload a vacant home or move into a new one, a speedy closing sounds great. But if youre trying to buy while selling, you might want some extra time. Compare the proposed closing dates and timelines among offers to see which works best for you. How much money you might be giving up. Two researchers from the Rady School of Management at the University of California San Diego found that from 1980 to 2017, on average, sellers accepted cash offers that were 12% lower than financed offers. Even if youre interested in a fast closing, weigh those conveniences against the money you might be leaving on the table. Two researchers from the Rady School of Management at the University of California San Diego found that from 1980 to 2017, on average, sellers accepted cash offers that were 12% lower than financed offers. Even if youre interested in a fast closing, weigh those conveniences against the money you might be leaving on the table. What kind of buyers youre dealing with. All of the cash transactions are generally quicker and easier points above are more likely to hold true if youre working with an experienced cash buyer. With a first-time cash buyer, you might still have contingencies. If the buyer isnt working with a real estate agent, that can also make the transaction more complicated. In this scenario, having a listing agent whos experienced with cash buyers can be a major asset. Cash buyers can potentially be pushy, assuming that a cash offer is irresistible. We had an investment property where the buyer came in $5,000 over list price during the coming soon, and they said this offer has an expiration of tomorrow evening, says Mike Ferrante, an agent with Century 21 HomeStar in Cleveland. He talked with the sellers, who decided to hold off rather than taking the cash. In this case, now theres three offers, and one is considerably higher than what they had offered, Ferrante says. Its probably pretty clear by now that everyones circumstances are different and youll need to decide what matters most to you. Whether you end up accepting a cash offer or going with a financed offer, Guerrero and Ferrante agree that in a market where you can expect multiple offers, it makes sense to wait for the right one to come along. Some people will say If I list it for 199 and we get an offer for 215 or 220, were just gonna take it,' Guerrero says. He encourages sellers to hold out for highest and best offers and to take their time. A recent listing of his sold for $46,000 over asking price to a cash buyer that came in at the eleventh hour when there were already more than a dozen offers on the table. Had we accepted an offer within 24 hours or even two to three days, we would never have gotten the offers that were coming in, Guerrero says. Kate Wood writes about mortgages, homebuying and homeownership for NerdWallet. Previously, she covered topics related to homeownership at This Old House magazine.