Everything Sellers Should Know About All-Cash Offers
Selling your house can be a very stressful experience for homeowners. It can be emotionally challenging to make repairs or upgrades to a house that you’re about to hand over to a buyer; you often need to keep the home in pristine condition for marketing and showings; and even if you find a buyer who’s perfect for your place and everything seems to be going swimmingly, a last-minute loan problem can derail your deal and send you back to the beginning — through no fault of your own.
It’s no wonder that many homeowners would prefer to work with an all-cash buyer when selling their house. The sales process with an all-cash buyer is almost always smoother and more convenient for the seller, with no loan contingencies that might cause a sale to fall through, and the seller usually doesn’t have to make any repairs to their house before transferring ownership to the buyer.
But there are also some drawbacks to working with all-cash buyers, and some additional factors you need to take into consideration before you decide to go this route. Weigh all the pros and all the cons, and the extra due diligence you might need to do, and then make an educated decision about your own situation.
The pros of working with all-cash buyers
Faster closing time
One big benefit of working with an all-cash buyer is that the closing process is likely to be much faster (and smoother) than working with a buyer whose purchase is financed. Getting a mortgage loan fully approved and deployed usually takes about 30 days, and there’s a lot that can go wrong in those 30 days that could cause the buyer to drop out of the transaction and send sellers back to the listing market to find another buyer.
A mortgage loan almost always requires two procedures that a cash buyer can choose to waive: the inspection and the appraisal. Many cash buyers will still ask for an inspection in order to get a full sense of what might need to be repaired in the home, but it’s not uncommon for them to agree to tackle minor repairs, letting the seller off the hook for those.
Appraisals are required in a financed deal so that the lender knows that the home is worth the amount of money that the buyer is paying for it (and the amount of money that the lender is loaning the buyer); if the all-cash buyer and the seller have agreed on a price, though, an appraisal really isn’t necessary. Bypassing the appraisal (and sometimes the inspection) can also help to shorten the closing timeline; an all-cash deal can usually close in about two weeks.
You can sell as-is
About three-quarters of all-cash buyers are investors, which means they’re intending to fix the homes that they buy and either flip them (sell them for more than they paid) or rent them out. Those investors usually have their own parameters and preferences for the appliances, flooring, systems, and other features of the house that typically need to be repaired or upgraded for a financed seller. An investor will want to tackle those repairs and renovations themselves to get everything done to their standards and specifications — that means the seller doesn’t have to worry about it at all.
If your home is outdated or needs minor repairs here and there — adding up to a significant amount — and there are financial or other reasons why you’d prefer not to handle those repairs yourself, then working with an all-cash buyer might be an option you want to consider.
There will be fewer (or no) contingencies
In a financed sale, buyers — and lenders — might request all kinds of contingencies that sellers will have to accommodate. The biggest one is the financing contingency: If the financing doesn’t clear for whatever reason, then the sale will be canceled. There’s also the appraisal contingency, which stipulates that if the home appraises at a lower price than the sales price, you’ll have to ask another appraiser’s opinion (and pay for the appraisal) or negotiate a new sales price that more closely reflects the appraisal price.
Other contingencies might put the burden of paying for repairs or closing costs on the seller. All-cash sales don’t include financing or appraisal contingencies, and other contingencies are usually easier to negotiate for all-cash sales.
The sale is more likely to close
When the buyer doesn’t need to rely on a lender to secure financing to buy a property, there’s a higher likelihood that the sale will reach the closing table without any snags. There are all kinds of reasons why a lender would pull out of the sale, leaving a buyer high and dry, but if buyers aren’t using a lender at all, then all of those possible roadblocks are removed. This can be a powerful incentive for sellers to accept an all-cash offer, despite the drawbacks (which we’ll cover below) — sometimes it’s preferable to have an almost-guaranteed sale and get the whole process over with.
The cons of working with all-cash buyers
Most all-cash buyers are investors
If you’ve got a strong emotional attachment to your home — and many homeowners do! — then you might not be all that excited to sell it to an investor instead of a private buyer, and most all-cash buyers (about three-quarters of them) are investors. Instead of moving into your house and living there, investors will either be making all those minor repairs and upgrades that will help them get a higher price, then re-listing and selling your house for a profit, or they’ll be renting the house out.
Either way, if you made memories (such as raising pets or kids) in the property and were hoping to pass it along to a buyer who will treasure it the same way you do, then working with an all-cash investor buyer might give you pause.
You might not get full price
The all-cash investor buyers who want to fix and flip your home have one goal in mind: They want to make a profit on the sale, which means that they’ll need to sell it for more than they paid for it and more than they spent to fix it. One of the best ways to do that is to pay under market value for your home, so if you are hoping to get a relatively high market price per square foot for the place, then an all-cash buyer is very unlikely to offer that. Some all-cash buyers will only offer around the amount of money you still owe on your mortgage, which could be significantly less than you could capture on the open market.
Scams can happen
To be clear, most all-cash buyers operate ethically and above-board — but there’s no licensing needed to become a real estate investor, and there are some all-cash buyers who aim to take advantage of sellers who are in a desperate situation. When you start talking to all-cash buyers, it’s a good idea to do your due diligence and look up the company through the Better Business Bureau, paying close attention to any complaints.
One big red flag is an all-cash buyer that wants the seller to pay an application fee; if an all-cash buyer asks you to pay a fee like that, be warned that it’s very likely this buyer is trying to take you for a ride.
Other things to consider when working with all-cash buyers
You’ll need to verify proof of funds
The term “all-cash” is at least slightly misleading — the buyer isn’t going to show up at closing with a suitcase full of money. Instead, they’ll write a cashier’s check or transfer the money to your account as the seller, so before you accept the offer or go under contract, it’s perfectly reasonable to verify the proof of funds. This basically means you’ll take a look at official financial documentation (such as bank account records) to ensure that the all-cash buyer actually is good for the sales price.
If you’re not sure how this works, talk to a real estate professional or title representative about what’s involved and how to go about verifying proof of funds.
Do some research
As noted above, not every all-cash buyer is an ethical operator, so it’s up to you to do some research on the buyer and make sure that the person or entity on the other side of the table is above-board. Spend some time looking at online reviews (if available), ask for references, and do your best to ascertain how trustworthy the buyer is before signing anything that binds you to an agreement.
You’ll still need a title company
An all-cash real estate deal can potentially eliminate some of the traditional roles involved in selling a house, but one that you should still expect to work with is the title company. There will still be paperwork involved to officially transfer ownership of the property, and the all-cash buyer will want to make sure that any liens on the house (second mortgages or home equity loans, for example) are documented and handled appropriately.
You may have options you haven’t explored
If you’re in a financial or life situation that is driving your desire to sell — and sell quickly — be aware that you might have options beyond selling to an all-cash buyer. In markets or neighborhoods with high rent prices, for example, you might be able to make some basic repairs to your home and then rent it out, paying for the mortgage and generating some extra income every month on top of that.
In some markets where home sales prices are growing or strong and stable, you might be able to work out a delayed payment deal with some general contractors; they’ll get paid for the work after your home sells (for full price) on the open market. Accepting an all-cash offer for less is almost never your only option, so try to explore all the possibilities before you decide to go that route.
Forgoing an agent can be a mistake
You don’t necessarily need to work with a real estate agent in an all-cash home sale scenario, and there are plenty of sellers who decide not to use an agent. The choice is entirely yours but think about the potential ramifications before you decide to go it alone.
Many all-cash buyers do multiple real estate deals in a year, and they intimately understand the intricacies of the process. If you don’t have the same level of experience and you’re not working with a qualified professional who’s protecting your interests, then how can you be sure you’re doing the right thing and getting the best possible deal for your household? An agent’s top priority is to represent their clients to the very best of their ability, and if you’re trying to save money by eliminating the agent’s commission, you could very well be losing money in the long run.