When selling a home, a cash offer is typically the dream for any home seller. The process is so much more streamlined when a seller doesn't have to hang their hopes on the whims of a buyers lender. While most lenders will go through with their promises, there's always a chance for them to back out at the last minute. Learn more about the benefits of cash offers for a home seller, and how a seller can make it work for their situation.
A buyer can technically offer whatever they like for a home, and they just might do that if they're swept away in the excitement of bidding—even if they don't have the financing to back up their claim. That's why if one buyer offers $250,000 with the help from an FHA loan and another buyer offers $240,000 with a cash offer, a seller may choose the cash offer because there's less chance the sale will fall through. Sellers in a hurry are especially likely to close with a cash offer because they don't have the luxury of waiting for a buyer to work out the terms of a loan with the lender.
A buyer with cash has far fewer strings attached to them. A lender is going to insist on a home inspection to protect their investment, but a cash buyer has no such requirement. The same goes for loan funding and appraisal contingencies. If the appraisal for a home is less than that of the final buyer offer, the seller will have to wait for the buyer to settle up with their loan company. The company will usually either demand additional funds or cancel the sale outright if they feel the home is worth a lot less than what the buyer wants to pay.
Some buyers have a tendency to overestimate their financial situation. And while a lender will try to catch these discrepancies before pre-approving anyone, they may miss something. As the lender does a much closer inspection into their potential customers, the loan may fall through after they discover the details.
Lenders may deny pre-approved clients for any number of reasons:
- Fraudulent employment history
- Identify theft confusion
- Recent major purchases (e.g., college tuition, car, etc.)
- Loan requirement regulations change
- Significant change in income or assets
The Nature of Cash
Cash offers aren't necessarily the norm for most sellers, but they're more likely in the hottest Spring Hill real estate markets. A house flipper in San Francisco knows how important it is to time the purchase correctly, and they may be more than willing to use cash as a stepping stone to a faster closing date. However, while cash buyers tend to equal a more straightforward sale, this is not always the case. A cash buyer can still request plenty of contingencies, any of which could cause the sale to fall through. So sellers will have to weigh the work and uncertainties of contingencies against the benefits of cash.
The biggest drawback for a seller to accept a cash offer is really the potential that the buyer is overrepresenting about how much money they have. Sellers should always ask for financial statements and consult with the real estate agent about the best ways to handle the specifics of any cash offer.
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