Cash Offer: Things You Need To Know

With a cash offer on the table, the buying and selling process is a little different than it would be with a mortgage involved.

For one, the process is generally faster. There’s no mortgage application, documentation, or underwriting, and the buyer typically doesn’t need an appraisal. As a buyer, you’ll still need to sort out the title policy and insurance, provide proof of funds, and sign closing documents, but according to Redfin, you may be able to close on an all-cash offer in as little as two weeks. For context as of September 2019, the average mortgage loan took 43 days to close.

Here are some other ways the process can differ with cash offers:

• Contingencies:

  There are usually fewer contingencies with cash sales. Buyers don’t need the financing contingency (that’s for mortgage loans), and there may be no need for a sale contingency either. Some buyers may still want an inspection contingency.

• Appraisal:

  Appraisals are typically lender-mandated, so without a lender, a buyer usually won’t have to worry about them. There are some cases in which a buyer may still want an appraisal, though — especially if they’re an investor looking to guarantee returns.

• Closing:

  The closing process on a cash offer is much more simple. As a buyer, you’ll sign the settlement statement, title, and deed, hand over a cashier’s check (or wire the money), and receive your keys. Without financing in tow, the paperwork is reduced significantly. Your closing costs are also lower since there aren’t any lender fees attached.

• Title & escrow:

  As a buyer, you’ll still need a title and escrow company to handle the transaction; but you may have more leeway in choosing these parties without a lender involved. Shopping around will help you compare fees.

   

Another major difference is that cash buyers need to prove their financial capability to the seller before moving forward. With a mortgage loan, buyers usually come to the table pre-approved, meaning the lender has vetted them and determined they have the financial means to handle the projected mortgage pay.

Cash offers can offer serious advantages for both buyers and sellers. But they may not always be the right choice. If you’re selling a house, make sure you consider the pros and cons of a cash offer; as well as who the offer is coming from. You want to make sure you’re doing business with a reputable party that has the funds to follow through on the deal.

If you’re buying a house, think long and hard about putting all your cash into one asset. Consider talking to your accountant or financial advisor; and make sure you understand the full picture before moving forward with an all-cash bid.