What Is a Cash Offer in Real Estate? Here’s What You Need to Know

How does a cash offer work in real estate?

A cash offer in real estate can simplify the homebuying process for both buyers and sellers. Without the need for bank approval or waiting on financing, the transaction can move forward quickly and smoothly. Let’s walk through the cash offer on house process to give you a better idea of what’s involved.

Step 1: Buyer makes the cash offer
The buyer submits an offer to purchase the property without financing through a mortgage. This offer typically includes the price they’re willing to pay and any terms they want to set, such as contingencies or closing dates. The seller reviews the offer, considering its strength, particularly since there’s no risk of financing falling through.

Step 2: Offer acceptance and contract signing
Once the seller agrees to the cash offer, both parties sign a purchase agreement, officially locking in the terms of the deal. The buyer may also submit an earnest money deposit to show commitment. This is the point where the transaction begins in earnest, with both parties preparing for the next steps.

Step 3: Perform due diligence and inspections
Even without a lender, buyers usually still conduct inspections to assess the property’s condition. The buyer might negotiate repairs or ask for a price reduction based on the findings. This step ensures the buyer isn’t purchasing a home with hidden issues, despite the faster process.

Step 4: Run a title search and enter into escrow
A title company performs a title search to ensure the property is free of legal issues or outstanding debts. The buyer places the funds in an escrow account, which acts as a neutral holding place until the transaction is complete. This ensures that both the buyer and seller fulfill their responsibilities before finalizing the sale

Step 5: Close the deal
Once everything is in order, the buyer and seller meet to finalize the sale, often at a title company or closing attorney’s office. The buyer transfers the agreed-upon funds, and the seller signs the deed to officially transfer ownership. With no mortgage involved, the closing is typically much quicker, often taking just a few days to a couple of weeks.

Step 6: Transfer property ownership
After closing, the buyer receives the keys and officially becomes the new homeowner. The deed is recorded in the local government’s records, ensuring the buyer’s ownership is legally recognized. The entire process, from offer to ownership, usually takes less time than traditional financing methods, offering both parties a smooth and quick transaction.

Who makes cash offers in real estate?

Various types of entities make cash offers. The first is pretty simple: a traditional buyer with liquid assets who is willing to pay cash. These are individuals or families who are purchasing a house or condominium for their living space.

A traditional buyer might have this cash ready for a home purchase if they’ve recently sold their last home and held onto the cash from the sale to avoid a mortgage on their new home. Additionally, they may have saved or inherited enough money to purchase the home outright.

Aside from the owner-occupant buyer, many cash offer companies, like direct buyers and iBuyers, also purchase houses with cash. These companies generally aim to purchase a home without financing and close quickly so they can rehab or flip the property and turn a profit.

Why are cash offers great for sellers?

Why would a seller prefer a cash offer? There are two main ways that sellers can benefit from a cash sale compared to traditional sales where the buyer needs to finance a mortgage:

• Speedy transaction: This is particularly true when you use HomeLight’s Simple Sale platform, which can help you close in as few as 10 days, not months. Cash sales involving direct buyers, flippers, or iBuyers can dramatically cut down the average selling timeline of 73 days (41 days to attract an offer and 42 days for the buyer to close on a purchase loan).
• Less risk: A buyer proposing an all-cash offer may be willing to waive an appraisal, which mortgage lenders will often require to ensure they’re not financing an overvalued asset.

It’s easy to be tempted by a cash offer for your home. After all, what could be better than a quick sale for a great price? However, in some instances, cash buyers pay less than financed buyers, as financed buyers are more likely to have to compensate for the risks to the sale that come with a mortgage in the form of a higher offer. 

Working with a top agent like George Kypreos of Las Vegas, Nevada, can increase your chances of selling for your ideal listing price.

In Kypreos’s market, “cash offers are paying just as much as financed offers,” he says. “If I had the choice, I would rather entertain a cash offer because there’s just less red tape and risk.”

Because experienced real estate agents keep up with market trends and are experts in their respective geographical areas, partnering with them can significantly increase your chance of selling for top dollar. Plus, the general population is aware of how a great agent can speed up and smooth out the process. 90% of sellers worked with a real estate agent.

Why are cash offers great for buyers?

Now that we’ve answered the pressing question, “Why is a cash offer on a house better for seller?” let’s shift to the buyer’s side. The truth is, cash home sales are equally beneficial to homebuyers, allowing them to be mortgage-free, avoid interest payments, reduce closing costs, and gain a stronger negotiating position. Non-mortgaged transactions are hardly a thing of the past. However, it’s still important to weigh the pros and cons of a cash offer on a house.

Here are a few ways that a buyer can benefit from a cash purchase:

• Lower purchase price: Paying cash for a house can save you money on the listing price. Sellers are often willing to accept a lower cash offer for a fast and hassle-free sale instead of dealing with the sometimes months-long traditional sale process.
• No mortgage interest: One huge benefit to paying cash for a home is that you don’t have a monthly mortgage payment. As of writing, the average 30-year fixed mortgage rate from Freddie Mac is 6.65%. 

Paying cash for a home can save you money in the long run, since you don’t have to pay elevated interest rates or go through the hassle of refinancing every couple of years when a lower interest rate presents itself.

• Stronger negotiating power: Sellers love cash buyers because there’s no worry about deals falling apart over financing. This gives you some serious bargaining power, helping you score a better price or more favorable terms.

Buying a home for cash can save you money in the short term and the long term. Before you decide whether to proceed with a cash purchase, talk to your real estate agent to make sure you’re making the right offer for the right home to fit your needs.

Cash offers help both sellers and buyers

A home transaction can be a stressful experience for both the buyer and the seller. Buying or selling for cash can reduce the stress on both sides of the transaction. So, if you’re putting your home on the market or starting to look for your next residence, keep your mind open to a quick and easy cash sale.

Partner with a proven real estate agent today to ensure you’re working with a legitimate cash buyer or securing a good deal in your desired neighborhood.

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