Home Buying in Poughkeepsie>Question Details

Bud, Home Buyer in Poughkeepsie, NY

Why is a cash offer on a house more attractive even if it's WAY below asking price when seller can get full asking price w/mortgage?

Asked by Bud, Poughkeepsie, NY Mon Nov 5, 2012

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With a cash offer, in most instances, the contract is not contingent on:
1. Financing, which could take 30-45 days depending on the type of mortgage
2. An appraisal of the property.
3. An inspection or survey
4. Insurance
The buyer can, of course, obtain items #2, #3, and #4; but on a cash deal, it's optional. On a financing deal, they're not.
0 votes Thank Flag Link Mon Nov 5, 2012
Hi Bud,

I think many Sellers can get bedazzled by the prospect of a cash offer even if it's way below other offers with mortgage contingencies.

First, the Seller thinks it's a "guaranteed" closing. As a Purchaser you can never know what's going on in the mind of a Seller; you can only negotiate on the best price and terms you can offer. So you can't know if the Seller is desperate enough, or, frankly, doesn't need as much money as you're willing to offer, to accept a cash offer.

With cash offers I am often reminded of my friend Mike B. an Attorney, now retired, with whom I did many real estate transactions. Mike represented many Sellers in his career. One day he said to me, "Trevor, I LOVE cash offers. Because my client gets so excited by the prospect of closing quickly. Then a week after I've sent out contracts I get a call from the Buyer's Attorney asking to change the terms of the contract from 'all cash closing' to a contingency for a mortgage. Yes, I LOVE cash offers!" Notice, he didn't say, "cash DEALS," because cash deals actually close. But an offer is an offer is an offer is an offer is...

BTW, this happened just last week with one of my Prequalified Buyers in New Rochelle: her substantially higher offer was tossed aside for a lower cash offer. When she told me the cash deal had a proposed closing several weeks away, I told her it was a phony cash offer. Sure enough, three days later the cash offer was withdrawn and she was back in the game.

Second, Sellers tend to lean towards Offers they (and their Listing Agent and/or Attorney) feel are most likely to close. I see this often with my Prequalified Buyers shopping for homes with 3.5% Down and FHA mortgage prequalification when compared to a Buyer with 20% down. Even with Underwriting and approving mortgages being as impossibly difficult as it is today for ALL mortgage loans, I still see Sellers leaning towards the 20% down offer instead of the FHA 3.5% down offer because they think the bigger down payment "guarantees" a loan approval and closing.


A lot of it is psychology in the negotiating process. I've seen my clients successfully kick other offers to the curb because they follow my advice on the best way to present an offer (see link below).

If you're working with a great BUYER'S Agent and Mortgage Banker AND you have all your ducks in a row you should be able to negotiate aggressively with a Seller against just about any other kind of offer and win.

Trevor Curran
NMLS #40140
Mobile: 516-582-9181
Office: 516-829-2900
Fax: 516-829-2944
PowerHouse Solutions, Inc.
185 Great Neck Rd, Suite 240
Great Neck NY 11021
Licensed Mortgage Banker – NYS Dept. of Financial Services
NMLS#3528

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0 votes Thank Flag Link Wed Feb 6, 2013
Hi Bud,

The answers below are all very accurate. I would just add one thing, the seller would be less anxious with the cash buyer. Typically they don't have many contingencies, so once contracts are signed, unless there is a title issue, it's a sure bet the closing will take place. With a financed deal, there are numerous ways the deal could fall apart. Phil did a great job outlining them. Hope this helps.
0 votes Thank Flag Link Tue Jan 22, 2013
Generally with cash offers the property sale closes faster, there may not be an appraisal involved, there may not be an inspection, etc.
0 votes Thank Flag Link Mon Nov 5, 2012
This is a great question.....that to a degree fluctuates with individuals and times.

The fact that a cash offer represents less risk and is one less obsticle that can come between a seller and their closing is a major consideration. Even a buyer with a "pre-approval letter" isn't a sure thing and can be turned down at the last minute by their lender.

It comes down to a matter of preference for each seller. A "cash offer" doesn't always carry the clout that many believe. There are other important factors that sellers consider that can also make a difference: quick closing date, no contingencies, no seller concessions etc.

A good agent should be able to help you put together an offer(even a financed one) that can be appealing to a seller that doesn't have to cost you tons of money.

Good luck,

Bill
0 votes Thank Flag Link Mon Nov 5, 2012
Thanks Bill! So all in all, it saves time for both parties if you do a cash sale right? Thanks,b
Flag Mon Nov 5, 2012
Hello again,

Since lenders are now very strict and it has become more and more difficult for buyers to qualify for mortgages, there is always a posibility that the bank will decline to provide funding at the last minute and a deal could fall through at the closing table..
A cash offer is a welcomed offer as there is a stonger possibility that it will vet to the closing table without much ristrictions. Please keep in mind though that your offer needs to be reasonable relative to current market conditions. Please make sure that your buyer agent provides you with enough information to help you determine what is the fair market value of a house depending on the most recent sales in the area you are buying in. Many sellers are now being realistic with their asking prices so you need to be aware of that and structure you offer accordingly. Feel free to contact me should you need additional information about buyer representation as I am an accredited buyer representative. Additionally, it seems to me that you are looking in the Spackenkill area which I am an expert on. I have live in Spackenkill for over 20 years and am very knowledgable about the neighborhood in general and real estate conditions in particular.

Regards,
Arij Kurzum ABR, SRES
0 votes Thank Flag Link Mon Nov 5, 2012
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