According to 2019 data from the National Association of Realtors, 12% of all buyers purchased their homes by paying cash in real estate.
But what is an all-cash offer and what does it mean?
This guide will walk you through everything you need to know about buying or selling your home through an all-cash offer.
What Is an All-Cash Offer?
An all-cash offer means that the buyer pays the whole amount of the house. That means that there are no bank loans or mortgages involved.
This doesn’t mean that you have to hand over a stack of dollar bills in a suitcase. But you do have the funds in an account that allows you to immediately withdraw or transfer funds.
For many buyers, this means a checking or savings account.
Cash house buyers do not need to get financing which means that the purchase offer will not include a financing contingency. Usually, this means that a buyer is serious (no backing out once an offer is accepted). Also, the transaction can close quickly without the uncertainties that are inherent in financing contingencies.
Pros and Cons of an All-Cash Offer
Now that you have a basic answer to the question ‘what is an all-cash offer’, let’s start to look at the pros and cons.
One of the best aspects of an all-cash offer as a buyer is that you don’t have to pay any interest on a mortgage. In fact, you have no mortgage at all!
Other perks are that when you have a cash offer, sellers perk up. They know you are serious and that often gives you more negotiating power. Sometimes you can pay less than someone who needs to secure financing to make the deal work.
If there are multiple offers on a property, sellers tend to choose the cash offer because it is guaranteed not to fall through.
Also, with all-cash offers, you save money on many of the fees.
The escrow fee is split between the buyer and seller with a cash sale. When there is financing, this fee (which is generally around $700) falls fully on the buyer.
Also, a cash offer allws you to avoid paying lenders various closing costs such as to verify your income and institute a loan.
As a seller, the pros are plentiful. You get a done deal without any delays and contigencies. Often, the buyer also waives the need for an inspection on the property.
Usually, cash sales close faster, too!
Cash offers aren’t all upside, however.
One of the downsides of paying cash in real estate is that you won’t get the lender to appraise the property. So you won’t actually know if you are overpaying.
As a buyer, you also can’t use the interest on your mortgage to lower your tax bill. In fact, some accountants might discourage you from paying cash so that you can write off the interest of your mortgage.
The downside for sellers is that perhaps you would have gotten a better offer if you held out longer.
This is especially true if an investor is making the offer. Investors are focused on profit margins. Home buyers are driven by emotion.
Paying Cash in Real Estate
Thanks for reading! Now you have the answer to the question ‘what is an all-cash offer’?
We hope this guide helps you understand the pros and cons so that you can make the best decision when buying or selling.
Next, check out our other articles for more great content.