Typically, when you think of cash offers, you think more so coming from investors, but home buyers are finding more ways to offer cash and become more competitive.
Hi, this is Sean Castoff, and today I wanted to talk to you about the difference between a cash offer for your home versus a finance offer. Now today, especially with the way the market has been, cash offers are becoming more and more popular. Typically, when you think of cash offers, you think more so coming from investors, but home buyers are finding more ways to offer cash and become more competitive. Now, what exactly does it mean when I say a cash offer? When I used to first get into the business and think about it, it sounds like somebody’s going to roll up to the closing table with a briefcase full of 100 dollar bills, which is not the case here. When we say a cash offer, essentially what we’re saying is that there are liquid funds available in the buyer’s bank account and ready to go once clear title has been obtained, and both parties are ready to settle.
Typically, when we make a cash offer, we will provide a proof of fund statement, which is just simply the last month’s bank statement showing that we have enough money in there to cover the purchase price, as well as the closing costs. Now, on the other hand, more traditional financed offers are going to entail a more complicated process. When you get a financed offer, you are relying on a third party, 99% of the time being a bank, approving the buyer and making sure that they’re financially able to move forward with the purchase of the property. Now, when you accept a financed offer and that contingency, there’s usually some things that go along with that. When you’re looking at a financed offer, you have to trust that the person who’s making the offer is able to follow through on what they’re saying with the bank, provide all that documentation, and also keeping in mind that the bank is going to have to go through their due diligence and their process to make sure that they approve not only of the buyer financially, but also of the property itself.
When a bank looks at a property, the number one thing they want to do is make sure that they’re not taking on too much risk. If you’re selling your property for a $100,00 dollars, typically a bank won’t want to lend more than $80,000 on that property. They look to stay below 80%. When they do that, they send out an appraiser to make sure that the house is worth what the purchase price is. A lot of times, the risk you run with that type of finance offer is, let’s say your house is under contract for a $100,000 dollars and it only appraises for $90,000. Now, a couple things can happen. The buyer can say yeah, it’s not worth as much as we thought it would. We’re going to back out. And you’re stuck at square one putting the house back on the market.
The second option is you could reduce your price. You thought you were getting $100,000 dollars, but turns out the bank and the appraiser only value it at $90,000, so you’re going to have to take a $10,000 hit there. Or the buyer can say, you know what? I really want this property and I’m going to cover the difference in the appraisal gap, and they’ll have to bring an extra $10,000 out of their pocket. Or finally, you could always renegotiate. In that instance, let’s say the buyer might only be willing or able to bring a few $1,000 dollars more to the table, so you might be able to meet somewhere in the middle. When you’re looking at selling your property and you’re evaluating the type of offers that are coming in, it’s good to keep in mind the pros and cons to a cash offer versus a financed offer.
You might get a financed offer that’s a little bit higher than that cash offer, but you have to weigh the risk of going through the process and being in 20, 30, 40 days and finding out that the buyer’s financing fell through, or the appraisal didn’t come in where you thought it would, and going back to square one and the cost that will take, versus a little bit less money with that cash offer but you know that you’re secure and you’re going to get the deal that you’re looking for. If you want to talk more about cash offers versus financed offers, or maybe you’re ready to start thinking about selling your property, you can always give us a call here through our number on the website, or reach out by filling out the form as well. Hope you have a great day. Take care.