A buyer who has decided to make a cash offer typically pays for the total cost of the property upfront and without a mortgage. Purchasing a house with a mortgage can be a somewhat involved process including underwriting, which can take between one to two months to complete.
By contrast, cash offers effectively cut out the middleman, facilitating a quicker sale. Typically, a cash buyer should set themselves a savings goal and work out how they plan to obtain funds for the property before making an offer.
Key Buyers
Over the last two years or so, Google searches have seen a rise in queries such as “sell my house fast Virginia Beach” or “sell home for cash”. Some sources suggest this is because many buyers are opting for cash-only until the current mortgage rates start to fall.
The majority of those buying by cash tend to be those with the income to do so, namely baby boomers looking for their next (usually smaller) property. Other likely buyers include house “flippers” and investors, while first-time homeowners typically cannot afford to purchase a property by cash alone.
Making a Cash Offer: The Benefits and the Challenges
There are a number of benefits to selling property for cash, including:
- Owning the home free and clear without repayments
- No appraisal or financing concerns (such as interest and fees)
- Minimizes the chance of delays during the sale process.
- More opportunities for negotiation
- Offers a greater chance of swift closure
- Being able to sell a property in its existing condition, without having to redecorate, repair, renovate or stage the home
It is also wise to weigh the challenges:
- No opportunity to compete with other bidders
- The sale of property is not always guaranteed
- Buyers (typically without a home loan) are likely to make low purchase offers
- Reduces the amount of available inventory for those purchasing by mortgage
Even without a mortgage, it can still be wise to follow some of the steps usually associated with financing, for example getting an appraisal to ensure the worth of the property, or enlisting an estate agent to assist with this and to help navigate any negotiations.
Is Financing a Better Option?
The decision of whether or not to make a cash offer (or to buy with a mortgage) depends on the buyer’s individual financial circumstances and eventual goals. Those purchasing by cash should take care to review their finances beforehand so as not to go over budget.
While financing offers a high return on investment long term (both from rising property value and potentially, investment in the stock market), interest rates can vary, and there is also the risk of foreclosure, which can remain on your credit report for anywhere up to seven years.
Making a Decision
The choice of whether to make a cash offer or pay by financing can also depend on the state of the property: if the building is in need of renovation or repairs, it may be more difficult for buyers to obtain a mortgage.
Mortgages can offer greater financial flexibility, cash offers can help buyers to make a swift purchase. However, those considering a cash offer should make sure they have sufficient liquidity to be able to cover the costs of buying and selling a house before they make an offer.
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