Bret, Home Buyer in Sam Hughes, Tucson, AZ

Why is cash rather than loaned money preferred by some sellers? Also, does 30% to 50% cash sweeten for such sellers? If so, why?

Asked by Bret, Sam Hughes, Tucson, AZ Tue Jul 26, 2011

The seller receives full payment at closing whether I pay with "cash" or loaned money so I do not understand the advantage of "cash" to sellers. Does their logic provide a clue to how much "cash" to offer in the event that a full "cash" offer is out of reach or are they looking for full payment in "cash" simply to avoid requirements entailed by loans? Thanks! Bret

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A true cash offer brings with it the fact that the buyer does not have to clear the hurdle of obtaining a mortgage. That's a pretty significant step forward in the process today.

A buyer who's getting a loan, will have a mortgage contingency in their contract... which means they might have 30 days into the contract, before the seller knows for certain, that the deal is solid. With a true cash offer, the seller will know that the deal is solid, much sooner in the process, probably as soon as the inspection contingency clears.

To some sellers, especially those who've had a deal fall apart due to a seller who was unable to get their loan, that has some value. Yes, sellers all get full-payment at the closing, either way, but only if it closes.
1 vote Thank Flag Link Tue Jul 26, 2011
Excellent answer
Flag Sun Apr 19, 2015
Alan May, Real Estate Pro in Evanston, IL
It really shouldn't matter, when I have sold properties I don't care if it is for a check or a wheel barrow full of cash, as long as I net the most possible. Some sellers see an all cash offer as less hoops to jump through since there is no a loan to deal with. Even on cash offers I would recommend "contingent on appraisal". Like most things, it comes down to the seller and their opinion and preferences. For example, banks are not going to "discount" the REO just for a cash offer, but if there are more than 1 offer and they are similar, Cash usually wins out. Best of luck.
1 vote Thank Flag Link Tue Aug 9, 2011
Cash is king. There is no other party involved with appraisals, inspections and credit. Makes for an easier transaction. Homes that are in "fixer" condition usually require cash buyers because lenders don't want to lend on such properties (the buyers may walk away one month in because the house is more work than they originally thought and that's high risk for a lender). Now, if the house is in great condition and you have stellar buyers, a loan that nets more profit for the seller may still be desired.

To answer the second question, when a buyer comes in with a significant amount of their own funds, it makes them more serious. It's easy to spend an hour with a real estate agent and write an offer. But if you put some serious money down, you are more interested than just writing up paper... you want that house.

My dad always said, "Nothing is better taken care of than that bought with ones own money".
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1 vote Thank Flag Link Tue Jul 26, 2011
As some of the others have already answered, an offer based on cash is less risky for the seller to accept than one contingent on financing. There can always be problems with financing--the house doesn't appraise high enough, some glitch in the buyer's credit history remained hidden until the underwriter looked closely, the buyers spend a chunk of money on something expensive (a new car, furniture, etc.), and throw off their debt ratio.

Cash is cash. There's no question about financing. There's no issue with appraisals. The buyer's credit history doesn't matter. The buyer's other purchases don't matter.

Sellers who want a greater assurance that the deal will go through will put additional weight on an all-cash offer for that reason.

If you don't go with 100% cash, sure, the more in cash, the safer the offer. Not as safe as all cash, but more solid than FHA at 3.5%, for instance.

Hope that helps.
1 vote Thank Flag Link Tue Jul 26, 2011
Don Tepper, Real Estate Pro in Burke, VA
Cash is preferred over financing because the risk of the deal falling through go down dramatically. Any deal contingent on financing has many ways for the deal to "blow up", including appraisals not meeting the contracted sales price. This is a common deal breaker nowadays with appraisals coming in much lower than the agreed upon sales price. Many cash deals do not have formal appraisals completed, but rely simply on market data supplied to them either by their real estate agent or doing the market research themselves.
1 vote Thank Flag Link Tue Jul 26, 2011
Cash is preferred because the sale will not be impeded or cancelled due the buyer failing to get financing, or the lender requiring repairs. If the seller knows that the house will not qualify for financing because it doesn't have heating or cooling, or the roof needs to be replaced, he wisely will not offer it to someone who needs financing. That would be a waste of everyone's time.

Why does the amount of down payment matter if the buyer is getting financing?

Conventional financing is preferred by sellers because the lender isn't as strict about the condition of the house. Conventional financing requires at least 5% of the sale price as down payment (compared to 3.5% down for FHA). But it's not strictly the amount of the down payment that concerns the seller. His main concern is the likelihood of the sale getting to closing. The chances of closing are higher when the buyer has conventional financing. The size of the down payment may be an indication of the buyer's credit-worthiness, so that might be a clue, although not positive proof that the sale will get to closing.
1 vote Thank Flag Link Tue Jul 26, 2011
With cash there is no mortgage contingencies, no bank appraisal and generally a much faster closing.
1 vote Thank Flag Link Tue Jul 26, 2011
I totally agree Bret, cash is nice but it does not carry the weight many think it does. A seller can just wait an extra 20-30 days fro more money, and they do! A cash offer means you are certain to close and often that you can close earlier, but most sellers would rather get more and wait a little longer for the closing.
1 vote Thank Flag Link Tue Jul 26, 2011
A full cash offer is preferred because it removes the requirement of an appraisal for lending purposes. With current conditions, there are a lot of times where the appraisal amount does not meet the contracted purchase price which causes more negotiation if the seller proceeds with the sale (they usually have to reduce their sale price). A larger down-payment is appreciated by sellers, however if there is a loan involved, all the lender requirements have to be met. In addition, lenders regulations are extremely controlled now and even very qualified buyers can have difficulty getting a loan. There is risk involved in any real estate transaction for both parties - sellers remove their property from the market for some period of time when it goes under contract, and if the buyers loan gets denied at the last minute, the sellers have lost potential buyers during that time period. Years ago there was a phrase, "Cash is King!" and this phrase is again coming to life.
1 vote Thank Flag Link Tue Jul 26, 2011
Cash has no extra powers than an offer with financing, why would you give away the home on a cash offer if you can walk away with the whole amount in a financed sale! Buyers with cash are not getting it, at closing whether cash or finance the seller walks away with a check for the amount they cleared after the sale of their home! Cash can do only one thing slightly better and that is you can close the sale quicker, but would you take 10K less or wait the extra few weeks
1 vote Thank Flag Link Tue Jul 26, 2011
It is a faster close and there is no waiting for appraisals and many times even the inspections are waived. The more earnest money you can show the better, but pure full price cash is still KING.
0 votes Thank Flag Link Tue Jun 4, 2013
Hi Bret,

Simply put, CASH IS KING. There are no financing contingencies to worry about with an all cash offer. Yes, having a larger down payment provides more flexibility in obtaining a loan. For a cash offer, there is only an inspection period as a contingency unless otherwise stipulated.
0 votes Thank Flag Link Tue Jun 4, 2013
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0 votes Thank Flag Link Tue Jun 4, 2013
Cash is King! With that said, it is all cash at the end of the day when you get to the closing table. There are simply less contingencies and fewer uncontrollable variables with an all CASH deal. Also, timelines are shorter and closing can be completed as soon as title is ready.

Hope this Helps,
0 votes Thank Flag Link Thu Jan 10, 2013
I think it provides the seller with a level of comfort whether it's an all-cash deal or a substantial down payment of cash. With an all-cash deal, they do not need to wait for the mortgage commitment (though the buyer must provide proof of funds). With a substantial down payment (and a pre-qualification letter), the seller feels the buyer is making a stronger statement and is more likely to be approved. That is not necessarily true in all cases but it makes the seller rest easier.
0 votes Thank Flag Link Fri Aug 19, 2011
Bret - the more you put down, the stronger you look (and are) as a buyer......and the smaller your mortgage becomes.
That's why 40 or 50% down is "sweeter" in the eyes of the seller.

Paying all cash is the mother appraisal to worry about (unless one is requested in the contract)...or lengthy mortgage process to impede the sale.
0 votes Thank Flag Link Thu Aug 18, 2011
Cash is king, but it will only get you a marginally better price. In the end, the Seller will walk away from closing with cash regardless of whether the buyer takes a mortgage or pays cash.
0 votes Thank Flag Link Thu Aug 18, 2011
I won't even accept cash. Gotta give me gold or silver. FRN's are truly trash.
0 votes Thank Flag Link Tue Aug 9, 2011
Hi, Cash removes the bank from the equation, thus lessening the chance of any bank related issues. A large down payment says to the seller that you are serious and have some skin in the game. It also means you'll need less of a loan which should make it easier for you to qualify for a loan depending on the situation.

Christopher Pagli
Licensed Associate Broker
Accredited Buyer Representative
GREEN Designated Agent
William Raveis Legends Realty Group
0 votes Thank Flag Link Tue Aug 9, 2011
Cash is still king and the closing will be sooner if that is a requirement for the buyer.
0 votes Thank Flag Link Tue Jul 26, 2011
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