Why Cash Offers For Your Home Are So Attractive

If you have ever sold a house before – either with a real estate agent or off-market to an investor, friend, or family member – then you know what the appeal is of receiving a cash offer for your home. But why is a cash offer for your home so attractive that you might accept it over other higher offers where a buyer is using a loan/mortgage? For the majority of sellers, the reason is that getting a cash offer for your home ultimately represents more certainty and assurance that the home sale is going to go through, and you’re not going to have to keep renegotiating – here’s why.

This comes as a shock to a lot of people, but for the vast majority of home sales today, the buyer isn’t the one who decides whether or not someone can purchase a house: it’s the lender. Because most buyers today purchase a house using a mortgage, almost all residential purchase contracts (offers) include provisions that allow a buyer to back out of the real estate transaction without penalty if they’re not able to secure a loan to purchase a home or if the buyer’s lender disapproves of the sale for slew of reasons that I’ll go into below.

Some common situations where a buyer might not be able to obtain financing are as follows:

  1. The home’s appraisal is lower than the sale price of the house which means that the house’s value isn’t enough to collateralize a loan.
  2. Buyer hasn’t been at their place of employment long enough
  3. Buyer is self-employed or something came up in the underwriting process
  4. A buyer’s credit score isn’t high enough
  5. Buyer’s debt-to-income ratio is too high
  6. Interest rates rise which increase the buyers debt-to-income ratio and raises the mortgage payment beyond what buyer can afford
  7. Interest rates rise rapidly and increase someone’s debt-to-income ratio
  8. home isn’t habitable

As you can see these are really common scenarios that everyone has either heard about or encountered at some point, and there’s a thousand other reasons why a lender could torpedo a deal as well, and you only find out about them after you’ve accepted the buyer’s offer.

Alternatively, when someone is buying a house using cash or giving a “cash offer”, it means that that lenders are not involved in the transaction and that the purchase contract (offer) the buyer is going to send you isn’t dependent on a lender’s approval. You, the seller, know ahead of time that you don’t have to worry about the deal falling through because of no fault of your own, and it’s one less way that a buyer can back out of a deal while it is under contract. Cash offers eliminate the lender, the appraisal, and their approval and involvement in the sale altogether: if a buyer has the cash to purchase a house, they can buy it right then and there.

But are cash offers really that big of a deal to most sellers nowadays? The non-answer to this is that it depends on the condition of the house and the seller’s specific situation. If the seller is confident that their house will get appraised for the amount on the purchase contract, and they believe that there isn’t going to be any issue with either the house, the buyer, the lender, or a combination between them all, then cash offers aren’t going to mean as much; however, most sellers don’t have that level of confidence and might be willing, to a certain extent, to sell at a slight discount in exchange for taking a little risk off the table.

How does a cash offer work? Obviously, a buyer should seek guidance from a local real estate agent or attorney on how they should proceed with a cash purchase and how to follow the specific contract that they are using. In Columbus, a buyer typically pays with cash by marking their method of payment on the purchase contract and disclosing the appropriate forms such as a “proof of funds” which shows the money in their bank account. This shows the seller that the buyer has the funds with which they intend to purchase the house. From there a buyer typically sends the cash via check or wire transfer to the title company to who then disburses to the appropriate parties at closing.

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