Concessions and Cash

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Do cash offers create a potentially better deal for buyers in today’s market?  Many associate cash offers as “cleaner” than their financed counterparts (due to no mortgage contingency in place).  Because of the potential of closing quickly without contingencies, many also relate cash offers to discounted purchase prices.

In today’s market though, that may not always be the case.  It is the decision of the sellers as to whether they agree to a discounted price or not and whether the offer meets criteria to be able to sell.  Whether the seller is a bank, investor or individual homeowner(s) looking to resell, there are still outside factors that need to be taken into consideration.

The biggest advantages that cash offers have is a stronger ability to get to closing versus a financed offer, which may fall apart during underwriting, appraisal or if buyer’s financial situation changes.  Additionally, without having the additional mortgage contingency as part of the contract, many cash purchases can close relatively quickly, even in days from contract.

But if the sellers do not have certain time constraints that require them to close quickly, sellers will receive credit at closing, and whether those funds come from a cash offer or the buyer’s lender, it makes no difference.  If the property is being sold as a short sale, a quicker closing will have little bearing, especially if the property has not received approval yet.  This leaves cash offers with the attractiveness of getting to closing versus their financed counterparts.

Banks have certain goals and the interests of their stockholders to obtain the highest and best offer, thus an automatic discount for cash offers is unrealistic.  A cash offer significantly below expectations may actually result in banks rejecting the offer completely, or extend the review time while they reassess the property value, during which time other offers can still come in.  Many banks have law firms who process their properties, so the latter would only come into play for properties that have lengthy market time with little or no interest.

If the seller isn’t a bank, there are still numbers that need to be met.  Owners may have little equity in the home, and discounting properties too much could equate to them bringing funds to closing just to sell.  It’s not to say that cash offers still have no leverage over financed counterparts.  Cash buyers still have the ability of acquiring deals if they know how to target the right properties.  Assessing the scenario of the seller and position on the marketplace is essential to negotiating a desirable price.  Additional provisions should also be provided for in any offer, to assess the condition and value of the home.  Lenders require certain requirements to be met such as appraised value, and without a mortgage contingency, cash buyers should look for certain key components to protect their funds.  Many sellers will also look for a verification of funds, a cash offer’s equivalent to a preapproval for a financed offer.

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Sherwin L. Sucaldito, REALTOR®, GREEN, ABR, CRPM
The Institute of Luxury Home Marketing
Green REsource Council, GREEN
Accredited Buyer’s Representative , ABR
Certified Residential Property Manager, CRPM

Creative Commons LicenseConcessions for Cash” by Sherwin Sucaldito is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.