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What is a cash offer in real estate and why consider it?

November 22, 2019 — Written by Aly Yale

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What is a cash offer on a house?

A cash offer is an all-cash bid, meaning a homebuyer wants to purchase the property without a mortgage loan or other financing. These offers are often more attractive to sellers, as they mean no buyer financing fall-through risk and, usually, a faster closing time.

Have you received a cash offer on your home? Are you considering making a cash offer or just want to compete with buyers who do? This guide can help.

→ If you’re interested in a cash offer on your home, Opendoor can help. We’ll buy your home directly with a competitive offer. See if your home qualifies.

How common are cash offers?

Cash offers are probably more common than you think. According to ATTOM Data Solutions, cash sales nationally accounted for just over a quarter of all single-family home and condo sales in 2018. Though it’s well below the cash offer peak (that was 38% in 2011), it’s significantly higher than the pre-recession average from 2000 to 2007, which clocked in at 19%.

This number varies by city. According to the same ATTOM Data Solutions study, metropolitan statistical areas (among a set of 200 with at least 200,000 population and sufficient cash sales data) with the highest share of all-cash purchases in 2018 were Montgomery, Alabama (54%), Naples, Florida (53%) and Macon, Georgia (51%).

Typically, cash offers tend to be more common in these scenarios:

  • An investor (or investment company) is interested in the property
  • The buyer has just sold their previous home and has sale proceeds to pull from
  • The seller has approached an iBuyer about buying the house
  • There’s lots of competition and a buyer wants to stand out
  • The property is in need of repairs or renovations and is attractive as a fix-and-flip home

Cash offers can crop up in any transaction though, not just those mentioned above. If you’re planning to buy or sell a house in the near future, it’s important to be aware of these offers and how they work.

How is the homebuying process different with a cash offer?

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.
two inspectors examining the side of a house for an appraisal

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 payment. On a cash sale, this safety net doesn’t exist. Instead, the buyer will usually need to provide a proof of funds letter from their bank showing they have the funds available to go through with the sale.

Cash offer considerations if you’re buying a house

So, should you put in a cash offer on a house? Just because you have the means doesn’t necessarily mean it’s the right move. Though there can be advantages to making an all-cash bid, there can be downsides too.

Here are some pros and cons you should keep in mind as you make your decision:

Pros of making a cash offer:

  • They give sellers more confidence
  • They can offer a faster closing period
  • Your credit score doesn’t factor into the process
  • You don’t need a home appraisal
  • You can save money over time (no interest payments)
  • You reduce the paperwork and documentation required

Cons of making a cash offer:

  • It takes a significant amount of money
  • You’ll limit your liquidity and tie up your wealth in one, hard-to-move asset
  • You won’t be able to use mortgage-related tax deductions

You may also want to take into account the overall competitiveness of the market — and the exact house you’re vying for. If the market’s hot and there are lots of other interested buyers, a cash offer may help you jump to the front of the line.

Finally, don’t mistake your offer as all the cash you’ll need. In addition to what you’re paying the seller, you’ll also need the funds to cover property taxes, homeowners insurance, HOA dues, earnest money, moving expenses, and more. Make sure you have the money to handle it all without depleting your savings (you’ll also want a cushion for unexpected repairs and maintenance tasks).

Not making a cash offer, but coming up against one when buying a home?
There are a few ways you can differentiate yourself:
  • Offer at or above listing price. Some cash offers are below listing, so this could give you a leg up.
  • Write the seller an offer letter to help make your offer stand out.
  • Include an escalation clause to show you’re willing to be flexible.
  • Consider whether it makes sense to waive any contingencies.

Cash offer considerations if you’re selling a house

If you’re selling a house, you’ll probably encounter a cash offer or two along the way — especially if you’re in an affluent market or a place that’s attractive to investors.

Generally, these are the types of buyers who will offer cash:

  • Investors looking to fix and flip properties or buy them and hold them as rentals
  • Retirees tapping their savings to avoid mortgage financing costs
  • Previous homeowners using their sale proceeds to purchase a new property
  • Wealthy buyers who can afford to put down large amounts of cash
  • iBuying companies that buy your home directly

Regardless of who submits the cash offer, you should weigh the pros and cons carefully before accepting it. Though there are advantages to going the all-cash route, the move isn’t for everyone.

Here are some pros and cons to keep in mind:

Pros of accepting a cash offer:

  • There is no risk of buyer financing fall-through
  • The closing process is usually faster
  • There typically won’t be an appraisal
  • You might avoid some contingencies

Cons of accepting a cash offer:

  • It might be lower than other offers
  • The buyer usually isn’t vetted as thoroughly

If you do sell to an all-cash buyer, it’s important to understand the pros and cons and ensure you’re making the best decision for your situation.

How Opendoor can help you with an all-cash offer

If you’re selling your home (or even just considering it), a cash offer can sound pretty tantalizing. After all, the closing process is often quicker and there’s no risk of buyer financing fall-through.

Opendoor puts that cash sale within reach. There’s no need to list, stage, or market your home, and if your home qualifies, you get a competitive cash offer in just 24 hours — all with just a simple form and some details about your property.

looking at opendoor website on mobile for a free offer

Key takeaways

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.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.

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