Hi everyone!
There's a lot of confusion out there in the world regarding buying a home with cash. For a long time, there's been this myth that you can get a much better deal this way. While that's true in some aspects, it's not all-encompassing.
Generally, when you purchase a home, the seller has a set figure in mind. Most of the time, they owe a mortgage company. They usually also intend to use a profit as a down payment toward their next home. While having a nice chunk of cash to outright buy a home is impressive, it may not be impressive enough to warrant a major price discount. Basically, paying with cash affects the seller in most of the same ways as using a lender would. There are some exceptions.
Cash sales are not subject to an appraisal. The appraisal process can absolutely kill a deal. Lenders require one to be performed to ensure the home is worth the amount they're sticking their necks out for. If not, the sale will not go through unless you can come up with the difference in cash or the seller agrees to reduce the price to within the appraised value. Cash buyers can fore-go the appraisal process altogether. That said, you do still have a right to have one performed on your own to protect your investment.
Cash sales are NOT contingent on financing. There have definitely been tears shed by many a buyer who lost the opportunity to purchase a home because their financing fell through. Sometimes it's the lender's fault, sometimes it's the buyer's fault, sometimes it's unforeseeable circumstances. The lender may miss something on the credit report, the buyer may forget to mention a significant event, one of the parties could make an error or omission, or there could be a life changing event that occurs in the process. Lenders have a lot of requirements for good reasons. These don't necessarily apply to cash buyers. (I am planning another blog post to talk about lender requirements - stay tuned).
Cash sales carry a MUCH more reasonable closing cost. You can usually close a cash sale for under $1000. Financed sales typically run well into the thousands - normally three to four thousand for an average priced home. Cash buyers will not have to worry about down payments, escrow account payments, first month's mortgage payment, etc. All of these figures add up to a decent amount of money that is only required by purchasers using a lender.
Cash sales can close more quickly. The norm for most lender involved closings is 45 days. Sometimes they may come together sooner, sometimes later (we're looking at you, USDA). Barring any title issues, a cash sale can usually be closed within a few days. I recently sold a home to a cash buyer that closed less than 48 hours after the initial offer was submitted. This speaks volumes to sellers who may be in a time crunch. Should a bidding war ensue with another buyer, the seller may be more apt to accept your offer for this reason, even if it's not as high as the other(s). This is about the only time that having cash can tend to warrant a better price. As a side note: don't be offended when the seller asks you for a proof of funds letter. They aren't being nosy - they just need to be sure that you actually have the money to buy their house.
Purchasing a home with cold, hard cash does have its advantages - but that may not necessarily include a significant reduction in price. That said, you can still get an excellent deal with proper negotiations, and by avoiding fees normally associated with loans. Because it can move more quickly, there may be less stress involved as well. In the end, you get the pride of ownership and the comfort in knowing you've made a sound investment!
...and ALWAYS have a home inspection performed!!!
Jeremy Reaves - The Realtor Guy
Questions or comments? Let me know below or send an email to jeremyr@era-king.com!
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