When it comes time to sell your house, the questions running through your mind are usually plentiful, especially if you are a first-time seller. You may be thinking, “how much can I get for my house?” or “how long does it take to sell a house?” or even “should I sell my house for cash or to a buyer taking out a loan?”
In this article, we will address that last question by making sure you understand everything there is to know about selling a house for cash. This will include all the ins and outs of a cash offer, the benefits, the drawbacks, and when it might be a good idea for you.
Cash offers can speed up the home sale process, which is appealing to many sellers. It also allows cash buyers to avoid taking out a loan and paying interest over time. There are some situations where it’s a bad idea (more on that later) and others where it makes a lot of sense.
Understanding how cash offers work and when they are beneficial will help you make the most informed decisions possible.
What Is An All-Cash Offer?
A cash offer is an offer made by a potential buyer of your home that isn't dependent on a loan. This means the buyer has funds available to cover the entire cost of the sale right away. The term “all-cash offer” means just that. The total price of the home is going to be covered with cash.
Most home sales require a lender. The buyer brings cash for a downpayment, usually between 5 and 20 percent of the sales price, and the lender lends them the rest. This is called a mortgage loan.
Mortgage loans require approval, which involves the lender checking the financial health of the buyer to make sure they can afford the loan. The mortgage company also checks to make sure the house is worth the amount of money the buyer is borrowing to pay for it. To do this, they hire an appraiser to research recent home sales in the area and tour the home to determine its worth.
With an all-cash offer, there is no loan and no lender, so none of these steps are necessary. Pretty appealing, right? Well, it’s important to remember the adage, “if it sounds too good to be true, it probably is.” This isn’t always the case, as sometimes it makes sense to sell your house for cash, but a healthy amount of skepticism will serve you well in avoiding getting scammed.
You may see “we buy houses for cash” advertisements on lawn signs and online and think a financial windfall is in your future. Unfortunately, these offers are frequently extremely low, and sometimes they aren’t legitimate at all. Sometimes, selling your house for cash can be a great opportunity, but other times it can leave you feeling duped. Understanding buyers’ motivations and the selling process for cash purchases will help you make the best decision possible.
Why Do People Sell Houses For Cash?
Cash sales can be appealing for both buyers and sellers for various reasons. They can be done quickly, which is appealing for people who need to sell their house fast, as well as buyers looking to move quickly. They can also be done in a much simpler fashion when compared to traditional home sales. This is appealing to buyers and sellers wary of a complicated process.
Simplifying The Sales Process
A cash sale is usually much more straightforward than a home sale involving a loan. When buyers want to start looking for houses, they need to start by going through a loan pre-approval process. This involves finding a lender, sharing their personal financial information, and waiting as the lender determines how much money they are willing to lend for the home purchase.
Once a buyer makes an offer on the house, their lender sends the loan to the underwriting department within the mortgage company. The underwriter needs to verify all your financial information by collecting W-2s, pay stubs, tax returns, and other financial documents.
This process, along with the aforementioned appraisal process, can be cumbersome and time-consuming. This is why when people buy a property with a mortgage, it typically takes 45 days or more. None of these steps need to happen with a cash sale, so the process is much simpler.
Fewer steps also mean fewer people involved in the process that need to be paid for their work. Simplifying the process can mean savings on closing costs.
Many people prefer cash when it comes to selling a house fast. The sale can be made pretty quickly with no lender to slow down the process. No lender means no appraisal as well. In a traditional home sale, this can slow down the deal and bring the sale price down if the property doesn't appraise at or above the agreed-upon price.
Cash buyers will often represent themselves instead of using a real estate agent. This can cut down on lengthy negotiations. Real estate agents will fight to get you the most money possible for your home when you sell it. That takes time though, so if you value speed over profit, an all-cash deal might be right for you.
Sometimes life throws a financial curveball at you and selling your house for cash becomes necessary. Let’s say you lose your job and realize you may not be able to make your mortgage payments soon. Instead of missing payments and possibly going into foreclosure, you could sell your house for cash to pay off your mortgage. In this scenario, you hopefully would have some money left over to help you stay financially afloat until you find a new job.
As another example, let’s say you face a family medical hardship, and expensive health care bills are piling up. Selling your property for cash might be the only way to pay them. Even if it’s below fair market value, getting an instant cash offer is sometimes necessary when difficult circumstances arise.
If you are considering this option, make sure to check your loan payoff statement to determine how much you need to get out of your property to settle your debt with the lender. You don’t want to sell your house for cash and still owe money on your mortgage.
Problems With The House
Sometimes when there are a lot of issues with a home, it can be hard to get a loan to purchase it. Condemned or dilapidated houses might appeal to an investor looking for a fixer-upper to flip, but they aren’t so appealing to a mortgage company.
Homes in bad condition represent more risk for lenders. Many things can go wrong during an extensive renovation or rebuild. Material and labor costs can rise suddenly, or the house can succumb to fire or other disasters, among other potential problems. This can affect the value of the home, which means the lender might not be able to sell it for enough to get their money back if a buyer defaults on the loan.
Cash home buyers are good candidates to potentially purchase a property with issues that scare off lenders. They don't need to worry about the home passing appraisal and inspection, the two critical hurdles for a deal that involves a mortgage.
When Should You Withhold From Doing Cash Deals?
All cash offers aren't suitable for every situation, and there are times when you should think twice before entertaining them. With a cash buyer, the money comes in quickly, but it is usually well below fair market value, and there are a few scenarios where that just won't work for you.
You're Behind On Your Mortgage
If you are behind on your mortgage, it may seem like selling your house for cash is an excellent way to pay off the loan. Missing payments and possibly going into foreclosure means losing your home and getting nothing in return. It also means taking a massive hit to your credit score, making future loans harder to obtain. This might make you feel desperate and eager to accept a cash offer.
The problem is when you sell to a cash buyer, the purchase price is usually below the market value, so it’s unlikely that you would get enough to cover the amount you need to pay off your loan. If you are behind on your mortgage, a traditional home sale where you accept both cash and loan offers is usually a better route to take. That way, you can get as much money as possible to pay off your loan and maybe have a little extra cash left over.
You Don't Want To Sell For Less
Getting a fair price and selling your home quickly are often at odds with one another. The traditional selling strategy is usually your best option to get the most money for your home. This starts with doing a competitive market analysis with a real estate agent to decide the best way to price the home.
Next, you and your agent work to show the property in the best possible light, which can include renovations, repairs, staging, professional photography, and an integrated marketing plan. Finally, open houses and private showings lead to interested buyers and, ideally, multiple offers at or above your asking price.
Prospective buyers know that cash offers appeal to sellers who want to move quickly, so they think they can offer less than the asking price. Sometimes, the discount they believe cash should get them is considerable, so you will likely end up with way less money for your home if you accept an all-cash offer.
You'd Rather Haggle The Price For The House
Whether it’s a car, a new tv, a home, or any other purchase, some people just love to haggle. Knowing you didn't take the first offer and negotiated to get a deal can be a rewarding feeling. Selling your house for cash is not likely to involve much negotiation.
When a cash buyer makes an offer on a property, they will expect to get it at a discounted price. That means submitting a low ball offer with a “take it or leave it” attitude. The room for negotiating and haggling is usually slim.
Who Will Buy The House For Cash?
If you decide to sell your house for cash, you need to know who you can sell it to. Fortunately, several different types of cash buyers may be interested in your home. Different types of real estate investors like wholesalers, buy and hold investors, and house-flippers are a few good options to consider.
Wholesalers are real estate investors who make an offer on a home and then find a different buyer to complete the deal. They often offer cash upfront to get a reduced sales price for the property.
In a traditional home sale, you list your house and then accept an offer from one of the prospective buyers. At this point, you are considered “under contract.” As the process moves along, you work with that same buyer to get to the closing table. This includes removing contingencies like inspections and financing and a myriad of other steps.
With wholesalers, you go under contract with them, and then they look for a different buyer who will ultimately finalize the deal at the closing. Wholesalers profit by convincing the new buyer to pay more for the property than the agreed-upon sale price and keeping the difference.
Buy And Hold Investors
Real estate is almost always a good investment if you buy a property at a fair market price. This is because properties appreciate over time. Some real estate investors take advantage of this by purchasing a property and then waiting until it appreciates enough to make a hefty profit when they sell it.
Buyers and hold investors are looking to get the lowest price for your home as possible, so their cash offers will be well below market value. The lower the price they buy it for, the more profit they enjoy when they eventually sell it.
As you probably know from various TV shows, house flipping means buying a property, fixing it up, and then selling it at a profit. Like buy and hold investors, house flippers are looking to buy for the lowest price possible to make more money when they sell.
House flippers also need to budget for the improvements they intend to make to the home before selling. This means they will often (though not always) use the incentive of cash to drive down the sales price.
The Steps Of Selling A House For Cash
Now that you know the benefits and drawbacks of selling a house for cash, you can make an informed decision about whether or not it is right for you. If you decide to consider a cash sale, knowing the steps involved is essential for success.
Check The Value Of Your House
The first step is to determine the value of your house. A real estate agent can help with this, but if you are looking to save money by doing it yourself, you can. Look at the recent sales in your area and see how they compare to your house. You probably won't find an exact “apples to apples comparison,” so you will have to do some calculating to find a good sales price for your home.
For example, let's say the house around the corner with a completely redone kitchen sold recently for $250,000. If your home has an outdated kitchen, but everything else is the same, you might price it at $240,000.Once you know the value of your house, you should figure out how much money you will actually get out of the sale. Check out this house selling calculator to easily compute all the variables, including closing costs, title insurance, and more.
Find A Cash Buyer And Request An Offer
When you know how much you want (or need) to get for your home, it’s time to find a buyer. Search online for wholesalers, buy and hold investors, and house flippers who might be interested. Once you find them, send details and photos about the property and request an offer.
Don't tell them how much money you want to consider selling, as you don't want to play all of your cards right away. Make them throw out the first sales price number and go from there.
Evaluate The Price And The Terms Of Your Offer
Once you get an offer, evaluate the price compared to what you are looking to get out of the sale. If it’s not what you want, push back and ask for more. Most cash buyers know that their first offer is only the starting point for negotiations.
Beyond price, look carefully at the other terms of the deal. How fast can they close? Is there an inspection contingency? Asking (and answering) questions like these is critical when evaluating the offer to see if you want to accept it.
Pass The Home Inspection
If there is a home inspection, you want to ensure your property passes with flying colors. This means doing as many repairs as you can before the inspection. Don’t be afraid to push back if the seller asks for frivolous things that aren't safety-related during the inspection. If they want you to install a radon mitigation system because radon gas levels are high, you should do it. If they suddenly decide that they want all new stainless steel appliances, just say no.
Verify Proof Of Funds
Make sure you verify that the buyer has the necessary funds for an all-cash deal before you sign on the dotted line. This can be in the form of a letter from their bank or a screenshot of a bank account with funds in it that will cover the sales price.
Hire Title And Escrow Companies
Title companies make sure the title for the home doesn't have any outstanding claims that could hinder the transfer of the property. Escrow companies collect all the funds that change hands throughout the transaction and keep them in a safe place until the closing. Usually, these services are combined under one umbrella company. You will need to select and hire one before you can close.
Review And Sign Closing Documents
Nothing beats closing day! This marks the final step in selling a home for cash and is usually attended by the buyer, the seller, and a title/escrow representative. Real estate agents will often attend as well if they were involved in the transaction. Review all the documents carefully, sign them, and collect your cash!
Selling a house for cash can be a profitable endeavor. The appeal of a quick, simple transaction can be enticing. Remember that you might not get the most money possible for your property, though. It all comes down to deciding if you value time or money more.