Why is a Cash Offer Better?
Like much of the United States, in the Colorado Real Estate market, we are currently experiencing a "Seller's Market". Bidding wars have suddenly become a more common occurrence.
If you are shopping for your next Colorado home using conventional financing, you don't have to be in the bidding war game long before hearing that your offer has been beat out by an "all cash offer".
This has obviously stirred the question, "What is so great about an all cash offer anyway?" After all, doesn't the seller get the exact same cash at closing regardless of rather or not the buyer borrowed it from a bank or not!?
What is so Great about a Cash Offer Anyway?
Cash is King! We've all heard it. But never has it been more annoying to hear someone chirping it than during a home bidding war in which you are NOT flush with cash to buy your next home. It leaves many frustrated buyers asking, "What is so great about a cash offer anyway?"
In a real estate transaction, being a cash offer brings several advantages. Let's try to cover the biggest ones here.
- Cash can be FASTER. It is not unusual for a cash transaction to be closed in under 30 days! Banks slow things down. They need things. Lots of things. They need things from you to get your loan approved, they need things from the title company, the title company needs things from them. They need to know what type and condition of property you are buying and approve of it.
- Banks require an appraisal. In a busy market appraisers can get backed up and slow closing dates. Banks have to review and approve the appraisal. If the appraisal comes back too low, the deal is then in jeopardy. Banks will not increase the loan to meet any appraisal gap. The buyer must bring more cash to make up any difference or back out of the transaction. This is a risk most sellers would like to avert. Cash buyers can skip the appraisal ... and they often do to strengthen their offer!
- Inspection Items - Some loan types can dictate acceptable property conditions. For example some loans require inspections of the property to assure that certain basic criteria are met. Pent up maintenance needs, such as chipped paint or building code items such as stairs and railings to code are the type of things on the list. Cash buyers can buy 'as is' at their discretion. In fact, a cash buyer can choose to waive the inspection right all together to strengthen a competitive offer.
In general, cash buyers are more nimble. They can move fast with less risk. They can prove their funds and these funds are less risky than a loan pre-qualification. Prequalified buyers will have to be able to maintain their qualification throughout the loan process. Job status changes, interest rate hikes, possible additional credit purchases by the buyer can bring an additional element of risk to that pre-approved status.
As highlighted above, cash buyers have freedom to more easily negotiate terms that remove risk for the seller.
Hope for the Non-Cash Buyer!
At this point, it is probably pretty clear that a cash buyer has an edge in a home bidding war. But don’t hand over your house just yet non-cash buyer!
Winning a Home Bidding War Without Cash
If you are up against an all cash offer and wondering if you have a chance to win this house, the answer is YES! You absolutely do have a chance to win a bidding war without cash.
While cash can obviously be used to your advantage in a bidding war, not all cash buyers in a bidding war are implementing every tool in their arsenal. They may not think they need to. There are also ways you can level the playing field with your conventional loan offer. I have written extensively about this topic in a previous post. Check out our blog post “Buying in a Seller's Market” to see our 9 tips to win a bidding war without cash!