When selling a house there are quite a few advantages when you accept a cash offer. And with such a tight market and a lot of people making cash offers, there are some drawbacks as well.
If you are like most sellers right now, you are not too sure about spending time and money getting a home ready for sale because of the increased cost of materials and shortage of good contractors available to help you. Then when you get it on the market, you are not too sure about a bunch of strangers walking through your house and getting their germs all over everything. So, many sellers right now are considering skipping the traditional listing and seeking a cash offer from investors, like the Tuckers here at kcmoHomeBuyer as well as some of the big national iBuyers.
If you are debating about an all-cash offer, we wanted to share with you the pros as well as the cons so you can make an informed choice when you sell your house or the home of a loved one.
First, What is a Cash Offer on a Home?
We need to define what a cash offer is and how it is different than a traditional sale where you list the home with a Realtor, they show your house to a bunch of buyers and they bring you one or more offers from traditional buyers who are getting a home mortgage.
The traditional sale, with the buyer using a loan, like FHA, VA, or even a conventional mortgage has a lot of hurdles to get over before the house actually closes. First is the marketing time frame with people walking through your house. Then the offers and negotiating the contract. Next up is the inspection process and then quite often a renegotiating on price or requests for repairs. Once that is completed, usually costing the seller some money, the next hurdle is the appraisal. And right now with inflated prices, many houses are not quite appraising high enough, so then there are even more negotiations. All in all, a traditional financed sale is going to take between 45 and 60 days if everything goes to plan, and if buyers like and want your house.
With a sale to an iBuyer, it seems really simple. You go online and fill out a form about your house. Someone calls you, and with a small computer evaluation, they make you an offer, quite often without ever looking at your house. You accept and write a contract. But be sure to read that contract. There is usually a fee that you pay to the iBuyer that is higher than the commission paid to a local Realtor. Then there are inspections, just like a traditional sale that could result in a lower price or the buyer backing out. And that’s with the big commercial iBuyers. Then there are the other companies, usually from out of state, that are not quite as upfront, who add on all kinds of fees, change prices and then fail to close.
With a cash buyer, like kcmoHomeBuyer, we are local. You contact us and we discuss your situation. Then we come and view your home and make a fair all-cash offer to buy your house. Because we are paying cash we can schedule a day and time to close in the next couple of weeks. We don’t need appraisals, very few if any inspections, and other than the time for the title company there are not many other people involved. No, we don’t show up to your house with a bag of cash, but you get a cashier check or wire from the title company once everything is complete.
How Often are Cash Offers
Well, right now in 2021, they are quite common. According to Statista.com, the number of houses sold for cash in the United States increased from 17,000 in 2009 (a time when banks had pulled back and were not making as many loans) to 36,000 in 2020. And when we talk with our counterparts in the real estate industry, there is a ton of stories about all the cash offers that are received and taken over financed offers.
Who is making all-cash offers to purchase houses?
- A home buyer that has recently sold their home and has the cash to invest in a new one.
- A real estate investor, like Kim & Scott here at kcmoHomeBuyer, who invests in properties.
- An iInvestor who wants to get your house under contract with a cash offer so they can then go try to sell the house before they have to buy it.
- A home buyer wanting to make their offer stand out over others.
- A person buying a home that needs extensive repairs that most lenders will not lend on.
What Types of Houses are Most Likely to be Candidates for “Cash Only”?
There are all kinds of homes that receive such cash offers. But there are many situations where a cash-only deal makes more sense.
Homes in Foreclosure
When a home is in foreclosure there are a lot of financial issues that a homeowner must deal with: negotiating a short sale, considering bankruptcy, worrying about eviction. Then when a foreclosure sale date has been set, the clock starts ticking, and often there just is not enough time for a buyer to get a loan, that’s where an all-cash offer from an experienced home buyer is needed. You don’t want a shaky cash buyer who could back out at the last second and the house then gets foreclosed.
Homeowners Experiencing Life Changes
Often when a homeowner has a major life-changing event, like those listed below, there ends up being a house that no one wants. They are already in a stressful situation and don’t want the added stress that comes with a traditional home sale. And sometimes the owner does not live near the house in question. So they want to move quickly and an accepted cash offer, from the right trusted buyer, helps them get through the process much faster.
- getting married and combining households
- getting divorced and separating households
- retiring and downsizing or becoming a snowbird
- having major illness and moving into assisted living
- moving in with an aging parent to help them or having them move in with you
- or a death in the family leaving a home vacant
Homes in Need of Repair
If you have a home in need of minor repair, a traditional sale is fine. Most lenders don’t really care if the finishes are a bit out of date. But if the home is missing or has major components that are no longer functioning, quite often they will not lend money to anyone to purchase it.
So if any of the following are missing, do not work, or are on their last legs, you may not be able to sell to a traditional home buyer with a loan: roof, furnace, bathroom, kitchen, windows, siding, even carpeting.
Why do Buyers Pay Cash
There are many benefits to making an all-cash offer.
Very Strong Negotiating Advantage
Think about it – as a seller if you have 3 offers, 2 of which are loans and one is all cash, which one would you pick. When we here at kcmoHomeBuyer sell a house, we have even been known to take a lower offer from a trusted cash buyer over an offer that was a bit higher with a conventional loan and even considerably higher with an FHA loan. Why? We got our money faster and we didn’t have to worry about the transaction failing at the last minute.
When a buyer uses their own cash or the funds from a private individual, there are no restrictions. No requirements on the condition of the home. No need for the home to appraise for a certain amount. No need for the seller to have owned the home for a certain period of time. No requirements on asked of the Home Owner or Condo Association.
Much Cheaper Transaction
The cash buyer saves money in all kinds of areas including appraisal fees, loan fees, processing fees, document fees, credit checks, loan origination fees, and sometimes filing fees. Paying all cash can save the buyer thousands at closing. But because sometimes an all-cash buyer is using all cash, but borrowing it from a private individual, there may still be appraisals and loan fees, there are still often loan documents that need to be prepared and fees to file those documents at the recorder’s office.
Benefits to the Seller when they Accept a Cash Offer
A Quick Closing
The biggest advantage to an accepted all-cash offer is the speed in which the transaction can take place. Because there is no need for all the inspections of a traditional sale and appraisal of a traditional loan, a cash sale can be completed very quickly. Yes, it can happen in a few days, but most often a week to 10 days. Conversely, it can happen on a set day, so if you as a seller need to know that the sale will happen on the 3rd Tuesday of next month, that can be arranged with a cash sale, it may not happen if a lender is involved.
Without a traditional buyer, the cash sale has no need for a traditional mortgage lender. That eliminates any need for an appraisal. While there are now a few instances where a lender might lend without an appraisal, that is all dependent on the buyer, their credit, and your neighborhood and house. You have no way of knowing if your home and the borrower would qualify for an appraisal waiver. With a cash buyer, there is no worry, because there is no requirement for an appraisal.
As we stated before, when we sell a home here at kcmoHomeBuyer, we often take a lower cash offer because there is less risk of the buyer backing out. With a cash offer, there are a lot fewer reasons like appraisals and the buyer losing a job that would derail the sale. And with most investor cash buyers, they are buying for investment, it is a business transaction, so they don’t bring their parents by to see the house and then get cold feet.
Selling a house is a very stressful activity. And when you factor in a traditional sale with cleaning, staging, picking a realtor, listing, marketing, negotiating, and then a traditional buyer with inspections, appraisals, and loan approval, the stress just goes up.
With a quick fast cash offer from someone like kcmoHomeBuyer, you can condense the entire premarketing process to a few days with just a phone call. And because we are cash buyers, you can condense the entire closing process to a week to 10 days. Saving a ton of time and a lot of sleepless nights.
Solving a Difficult Problem
Often as cash buyers, we step in when there is either a difficult problem like foreclosure, a death in the family, or a divorce. There is a house that needs to be liquidated, quickly and quite often it is in need of a little and sometimes a lot of repairs. We are able to step in with a quick cash sale that allows you to liquidate the house and turn it into cash. That can then be split up in a divorce or divided by heirs or to stop foreclosure or maybe a tax sale.
Save on Repairs
In a traditional home sale, quite often the seller will need to make a lot of repairs, that sometimes they don’t have the time, money or ability to get done. Then, the home needs to be cleaned and staged to look its best, and kept that way for photos and showings. Then even more repairs are often required after inspections.
With an all-cash offer from a top investor buyer, you skip all that.
Keep a Bunch of Strangers Out of Your House
Let’s face it if you go the traditional route, a bunch of people are going to be walking through your house. Opening drawers and doors, looking at EVERYTHING. Your real estate agent may want to hold an open house and then all your neighbors will walkthrough. And the longer it takes to sell, the longer you have to keep everything perfect.
With a quick cash sale, one or two people look at your home, that’s it.
Stop Spending Your Hard Earned Cash
Has your home turned into a money pit? Many homeowners with an older home find they are spending money month after month on fixing things. First little things break and then major repairs start building up, you need a new roof, new windows, siding, painting, a new furnace, and it just keeps adding up.
Many sellers we work with here at kcmoHomeBuyer have an old family home that they have lived in for years, watching their children grow up. Now it’s just them and they want something smaller and newer so they don’t have to spend their empty-nester years repairing things.
Can Move Quickly
Yes, we have already mentioned the speed of closing. But what if you want to move somewhere else. You want to move into that condo downtown. Or move to your vacation home in Florida. Or, like one of our sellers you have the RV in the driveway and you are ready to hit the open road. The only thing holding you back is the house. A quick cash offer gets you moved quickly!
Skip the Inspections & Appraisals
Let’s face it, it is no fun to get your home under contract and to then have the sale derailed by inspections and appraisals. With a cash offer, you eliminate the appraisal and many home inspections. Here at kcmoHomeBuyer, we don’t do a lot of inspections, but we do a few. If your home has foundation or structural issues or some major component we don’t know about, we will have those inspected. But we will do so a quickly as possible so we don’t waste your time or ours.
Save on Commissions
We want to be upfront with you. There is a ton of research out there that if you list your home with a real estate agent, you will sell it for more. But to sell it for more you will also have a real estate commission to pay and quite often a few extra fees come with that commission, a marketing fee, or an administrative fee. When you sell to a cash buyer, there is no commission and there should be no marketing fee or administrative fee.
What about Closing Costs?
As a seller, when you sell a home, your closing costs are going to be pretty much the same whether you sell to a cash buyer or to a financed buyer. BUT, when the home selling market is an average market or there is a glut of houses and it is a buyer’s market, then buyers who are getting financed will ask for the seller to pay some or all of their closing costs. So a buyer who is getting a traditional mortgage might have $3,000, $5,000 or more in closing costs, and often ask the seller to pay for these costs. If you have a cash buyer, well, I guess they could ask for their costs to be paid as well, but for the most part they don’t.
If you have been wondering just what Closing Costs might be when you sell your house, we have a great article that explains what they are, what they are not, and how kcmoHomeBuyer approaches them.
What to Watch Out for with a Cash Offer
We have outlined a lot of pros to the cash offer. But there are a few things that you need to be educated on so you don’t fall victim to a “cash buyer” who does not perform because not all “cash buyers” are the same.
There are a lot of buyers out there who will make you an all-cash offer without ever looking at the home. They will look at computer-modeled values and put in a repair factor that they just make up in their heads. Then they will schedule their inspections and then suddenly their all-cash offer is withdrawn or reduced. For this reason, when we are selling, we will not take an offer from a buyer who has not walked through the home first.
Now, there are a bunch of legitimate wholesale buyers. We wholesale from time to time ourselves. But as a seller, you need to know what a wholesale transaction is so you know what the risks are.
First, the wholesale investor is getting your home under contract, not for them to purchase the home, but for them to have a purchase contract that they can sell. They will typically want a few weeks to even a few months time between writing the contract with you and the actual closing taking place. This gives them time to market the contract they have with you with real cash buyers who have the funds or the private money to actually buy your house, and pay them a fee.
We are not here to debate if this is good or bad, there are some legitimate folks that do this successfully every day. The problem arises when the wholesaler can’t find that end buyer to sell the contract. Then they come back to you wanting a lower price and more time or they cancel the contract.
We also see some cash buyers who will tell you here’s our offer, but you have to sign it right now. This takes away your ability to read and review the contract or to have a trusted advisor read and review the contract. Now, it may be true that the buyer has a set amount of money and other houses they could buy, but we would advise being very careful if they don’t want to let you have a day to review the contract or time to have your attorney look it over.
Don’t Know What they are Doing
Some of these cash home buyers are brand new to the business. We get it, everyone has to start sometime, we were new once too. But sadly many don’t take the time to actually get all their educate themselves and get their ducks all in a row. They quite often are quite shaky when it comes to determining home values. They have no idea what they are looking at when it comes time to figure out what needs to be fixed and what all of that will cost. They don’t actually have their money lined up if they are going to buy your house and they don’t have a cash buyers list with several 1000 buyers on it in place.
If you are considering selling your home, here at kcmoHomeBuyer, we can offer several solutions for you to consider. We have purchased several 100 houses in the last 20 years. We have our own cash ready to go as well as several private individuals who will fund our purchases. We own the local real estate investor association here in Kansas City so we also have several 1000 other cash buyers who often buy from us for rental property. And because we are also licensed Realtors, we can offer traditional options if that would fit your needs better.
Request a FREE, No-Obligation ConsultationYou can trust our firm offer will not change before closing, and you won’t be hit by any of those surprise fees. We’ll be there to walk you through each step of the sale.
Glad we Called
We had inherited Mom and Dad’s house a few years ago and had decided to rent it out. But being a landlord was not the best choice for us as it was a never-ending battle to keep it rented, keep the rent coming in and to fix it up every time that didn’t work. We were fed up and ready to be done with the whole situation. We called Scott at kcmoHomeBuyer and he was able to talk us through the situation on the phone, meet us at the house and make us an offer. We didn’t have to fix a thing, he took all the junk the last tenant left, and we closed a couple of weeks later.
Glad we called.