Considering a cash offer can be an advantage

By Jeff Wellman

Making a cash offer on a home gives buyers an advantage in a competitive real estate market.  

What is a cash offer?

When a home buyer purchases a home with a cash offer, it means they offer to buy the home without financing a mortgage. They pay for the house with cash they already have. No loan is required. However, no hard cash is usually exchanged. Normally the final payment to the buyer is made with a cashier’s check or by wire transfer.

What makes a cash offer so desirable?

Cash offers on a home have several benefits for both the seller and the buyer. When the buyer has the cash on hand, the seller is ensured the deal will go through. There is no chance of the buyer losing financing at the last minute.

There are usually no contingencies either from a buyer who makes a cash offer. They often waive the home inspection required by a mortgage company. They are also less likely to want an appraisal. This is especially an advantage in a housing market where appraisals based on the value of the sales of similar homes in the past don’t keep up with current housing prices. A bank won’t lend a buyer more than the home’s appraised value. However, a cash buyer is free the pay whatever they agree on with the seller.

The sale of a home purchased with a cash offer is usually completed faster as well. There is no waiting on approval from the mortgage company and there is less paperwork for all parties. While the cash buyer still needs to use a title and escrow company and work with an experienced buyer’s agent, there are fewer administrative tasks when there is no lender involved.

When faced with multiple competitive offers a seller is likely to pick the cash offer for all the reasons mentioned above.

How does a buyer make a strong cash offer?

A buyer can make a cash offer on their own, but enlisting the assistance of an experienced real estate agent is recommended. They help ensure that there are not any missteps that result in the offer being declined.

The first step when making a cash offer is deciding on the purchase price offered to the seller. This depends on the home’s listing price, recent sale prices of comparable homes in the area, and the current market in that community. In a hot seller’s market like the one today, buyers often offer full list price or even over list price. 

When a cash buyer submits an offer, they should also provide a letter from their bank that shows proof of funds. This lets the seller know they actually have the cash. Also, the buyer should make sure the seller is aware of any other advantages to them such as waiving inspections and appraisals and a speedy closing.

Once the offer is accepted and the two parties enter into a purchase agreement, the buyer puts down earnest money. Also known as a good faith deposit, earnest money is usually one to three percent of the purchase price of the home. It shows the seller that you’re serious about buying the house. 

When it comes to the housing market today, the ball is still firmly in the seller’s court. Demand is high, but inventory is low. A solid cash offer is one way buyers can have an advantage.