Cash buyers, often investors, are taking a larger and larger share of home purchases in today’s highly competitive fast paced housing market. Are cash deals always a good thing?
What is a Cash Buyer?
A cash buyer in real estate is a buyer who doesn’t need to finance a property sales transaction…that buyer has the cash “upfront” to pay for the property without having to get a deal financed with mortgage loan on the property.
It’s said that property sellers love cash buyers. No contingencies on the deal or waiting to get approved for a mortgage, no having the deal fall through if financing doesn’t come through, no muss, no fuss…the buyer just hands over the cash the seller wants for the property and the seller just hands over the title and the keys to the buyer, right?
Sometimes, but not always. More often than not, cash buyers may want a “discount” on the price of the property from the seller in exchange for the speed and “sure thing” associated with a cash transaction. Also, some sellers suspect that something’s fishy with cash buyers, fishy as in money laundering. All in all, however, cash deals can happen for all sorts of reasons, at any price point, and in any market. Mostly, cash buyers are welcomed by sellers.
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Remember, all-cash upfront buyers may not remain cash buyers once the deal closes. According to Seth Levin, an associate broker with Keller Williams NYC,“Many (cash buyers) use their cash to win the bid, waive the mortgage contingency, and pull together some financing after the property closes…this enables them to be competitive, win the property and close quickly, but then pull money back out…for the benefit in letting their money earn higher returns elsewhere.”
Pros of Cash Buyers
As mentioned above, sellers prefer cash buyers for the speed and implied certainty of cash deals. Sellers also like the tendency of cash buyers to be less concerned about the condition of the for-sale property than an individual, owner-occupied buyer.
Rather than being concerned about having to finance repairs, remodeling, utility upgrades, foundation issues, etc., cash buyers, particularly investor-cash buyers, want to get the deal done, do minimum repairs and get renters into the property as soon as possible to generate revenue from the property as soon as possible.
According to Sydney Holmes with Triplemint, a New York City brokerage, an all-cash deal can “…generally close…within 30 to 60 days…” or less.
Cons of Cash Buyers
“Typically,” said Jose Laya, a Miami Beach agent, “your biggest con as a seller is most cash buyers look for a discount as they are assuring the seller they will close on the property without issues.”
Sometimes, however, sellers care about who buys their properties, particularly if they’ve raised their families in their homes. These sellers will most often sell to buyers who have families. And it’s family buyers who most typically buy with financing.
Seller is King, Not Cash
It’s important to remember that sellers decide who will become the next owner of their property, particularly in our completely imbalanced seller’s market.
Cash buyers are convenient, less “messy,” more certain, and faster. On the other hand, cash buyers, for all their convenience, straightforwardness and speed, can be more demanding of sellers in terms of wanting a larger discount on the property.
Non-cash buyers can be riskier, slower and stimulate more sentimentality in the seller…the reason some buyers write “love letters” to sellers explaining why they (and usually their family) would more appreciate, enjoy and love the house, just as the seller’s family did. And non-cash buyers most typically offer sellers full and/or premium prices for the house.
If the seller wants/needs out of the property as soon as possible regardless of a discounted price, you can bet that the cash-buyer will win. If, on the other hand, the seller cares who “gets” the property, chances are the financed buyer who pays close to the full or a premium price wins. The seller’s in the driver’s seat, not the cash.
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