This article takes you through the benefits and the downsides of accepting a cash offer.
During my career as a cash house buyer, I’ve answered many questions about the advantages and disadvantages of a cash offer on a house. In this article, I’m sharing and summarizing my answers.
Let’s start out with the advantages to cash offers.
Advantages of Cash Offer on House
Cash house buyers pay cash, and this type of transaction has numerous advantages for someone selling a property.
Homeowners who have a house that needs repairs in particular have significant benefits from cash sales.
Let’s review a few of the major advantages when you accept a cash offer for your home.
Pro #1
Cash sales close quickly. Selling a house to a real estate investor who pays cash typically means the transaction closes — and rapidly. Sometimes cash buyers can close in under a week.
Fast-moving closings benefit homeowners under a deadline. Workers relocating for job transfers, for example, typically need speedy sales.
Pro #2
A cash offer saves the seller money. Weeks of waiting for loan approvals and underwriting means the seller covers all the costs during that wait.
The seller continues to pay principal mortgage payments, make utility payments, and pay property taxes and maintenance costs during the time waiting for the loan to be funded.
These bills add up quickly, particularly in counties with high property taxes and a house or condo in a complex with large monthly homeowner association fees.
Pro #3
Getting a cash offer on your house means you skip the required appraisal and the time involved. There’s no hassle to make the property available to the appraiser in a cash sale.
Appraisals can take weeks to complete, depending on your geographic location. There’s also no guarantee that the property will not need a second appraiser to examine your house.
The bank requires appraisals to ensure they’re not lending too much on the property in case they must foreclose on the loan and need to resell the property to other buyers.
With a cash buyer, there isn’t any mortgage, so an appraisal isn’t required.
Pro #4
Cash buyers have an increased chance of closing the sale. There are no formal pre-qualifications necessary with a cash buyer, as there are in a traditional mortgage sale.
The buyer, however, does need to show that they have the funds on hand to close the sale with cash.
Sellers in cash sales typically require a significant deposit from the buyer to secure the house during the escrow period.
Some sellers also request a significant penalty to be paid by the cash buyer to the seller should the buyer fail to pay the promised amount in cash at the close of escrow.
Pro #5
Homeowners in distress can benefit from a cash sale. Sellers needing to pay off property tax liens and back taxes find real benefits from cash offers.
Cash means less wait, and that also means fewer interest payments and fees for owners who are upside down on a loan.
Creditors typically will work with sellers until the house closes when the owner has a house in escrow with a cash offer in the buying position.
Disadvantages of Cash Offer on House
While the benefits to a cash sale are significant, there are a few disadvantages to selling your house for cash. None are major, and all can be adapted to work in your favor.
Let’s review the disadvantages.
Con #1
It’s a fast sale. One drawback to accepting a cash offer is cash buyers typically want to move quickly to close.
If you need to find a property to relocate or you have a lot of things to pack and move, a quick sale might not be what you’re looking for.
However, some cash buyers will work with you to meet your relocation calendar.
Real estate investors who pay cash also frequently allow you to leave personal items behind. That saves you time and energy in the move.
Con #2
You’ll miss out on some federal tax deductions with an all-cash sale. Since many investors pick up the tab for closing costs, the seller won’t have those to deduct at federal tax time.
At a first glance, the loss of the closing cost deduction may seem like a disadvantage, but you’ll need to evaluate that write-off versus the other monetary advantages from a cash sale.
When you calculate the costs of waiting for escrow to close in a traditional sale, the write-off advantage may disappear.
You’ll pay all the utility bills, principal mortgage payments and fees such as HOA fees during the time a property sits waiting for buyer and loan approval.
These costs accrued during a traditional sale aren’t deductible on federal income taxes.
The cash offer time advantage and those expenses might offset any federal tax advantages from the closing fees write-offs.
Con #3
Sometimes cash offers are significantly lower than your asking price. A buyer with cash realizes they have the advantage for a speedy sale so they may try to leverage that with a lower offer.
A number of cash buyers are investors who want to buy your home to rent to others.
These investors factor in their costs to do that and deduct those from the home value. The result is a lower offer.
Other cash offers come from contractors and home flippers, particularly offers for homes that need a number of repairs or require updating.
These buyers add the cost to do the repairs plus potential resale profit and subtract that amount from the as-is market value of the house. This means the cash offer will be less.
Final Words
We’ve covered the major pros and cons of a cash offer on a house. Basically, they all come down to a speedy and easier transaction versus lower proceeds from the sale.
If you have already decided that a cash offer is what you prefer, find cash house buyers near you by browsing our directory where we list vetted and reputable professionals.
Or, request a few cash offers at once from different local investors, compare them, and choose the best one.