What are the advantages/disadvantages of paying all cash vs getting a loan?

Asked by East Bay, San Leandro, CA Sat Apr 18, 2009

If a house has multiple offers, is there an advantage of paying all cash? Can you also go below the asking price? If yes, how much lower can you go? For example, a house is asking for $300k and there are multiple offers, and I make an offer of $275k cash, what are my chances of getting the house?

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e, , Alameda, CA
Tue Jun 23, 2009
I would have to say all cash offers the great. They stand out from every other offer. I have seen banks take an all cash offer that was 30,000 below the highest offer simply because it was cash. It is a great advantage that most people can not do. If you have any other questions feel free.
1 vote
Lisa Cartola…, Agent, Oakland, CA
Wed Apr 22, 2009
Hello East Bay,

In my opinion, yes. When submitting an offer on a home with multiple offers, and all cash offer will stand out because with an all cash offer there is not a need for an appraisal or loan contingency. This is a very attractive offer to a seller since in the current market the loan and appraisal contingencies can be difficult at times.

Here is the caveat--- if there are multiple offers and an all cash offer is significantly below other offers than come in, the sellers may decided to go with the higher offer even with all of the contingencies. It will really depend on the seller's situation. Is this a short sale? Do the sellers have to sell quickly?

Work with your Realtor to try and get the best feel possible for the seller's situation and motivation. This information, along with information regarding the market trends in the area where the home is situated will help you to make the best possible offer.

I hope this helps!

Lisa Cartolano
Web Reference:  http://www.LisaCartolano.com
0 votes
Antonio Car…, Agent, San Leandro, CA
Sun Apr 19, 2009
Dear Home Buyer, yes, there is an advantage of paying all cash... only if your offer is competitive enough to be considered on the top 2-3 offers. The moment the house gets more than one or two offers, no seller will consider taking anything below the asking price, cash helps because the appraisal contingency is or can be removed making the closing of escrow rather quick. This represents an advantage to the seller when considering another offer that have a loan contingency.

Also the all cash offer means the buyer is ready to perform and will not have to wait to any approval. The seller however will wait the 30 day close of escrow and risk losing the buyer at any of the contingencies periods to get a substantially higher price for the house. The price range where you are at is the most competitive there is right now.

This "first time" buyer market is going to get even worse as we approach the dead line of November 30, 2009. that is when the $8,500 tax credit expires and will never be available again. That credit is what is one of the main reasons first time buyers are coming out in droves and keeping the real estate market very active.
Good luck in your house search, I would suggest to you to work with a local Realtor that is familiar with the area where you want to buy. Wishing you all the best! come and TANGO with us!
0 votes
Dp2, , Virginia
Sun Apr 19, 2009
For many investors I know (myself included), it doesn't matter whether a property has multiple or no other offers. The only thing that matters is that the numbers work, and we're not going to pay more than a house is actually worth (ie the appraised value). Plus, we're not going to compete with other buyers.

The seller can accept or reject any offer. If a seller rejects one of my offers, then I'll move on to the next deal. There are far too many other great potential deals out there waiting to be had for me to pine over a rejected offer. Besides, sometimes rejected offers turn into accepted ones, because some deals occasionally fall out of escrow for one reason or another.
0 votes
The Medford…, Agent, Fremont, CA
Sun Apr 19, 2009
East Bay:

There are many advantages to cash offers, but not so much in the current market. If I am the listing agent and multiple offers come in, I advise my seller to counter the top three offers. Here is what we would do:

(1) Combine the best features of the best offers and set up a target offer. This offer would include (i) best price, (ii) best terms – limited or no contingency times, amount of cash down, days until close of escrow and (iii) amount of good faith deposit.

(2) Send out a multiple counter offer to the three best offers that would invite all three to match or beat the target.

(3) Award the contract to the party who responds with the best Counter Offer #2 to our Multiple Counter Offer #1 – in other words, the party who comes back and matches the terms and then beats them with an even better price or terms.

(4) Keep the second best response in a back-up position in case something happens to the first.

We would not accept a lower cash offer out of hand – we would invite the cash offer to meet or beat the highest price and terms. It’s all about cash in the seller’s pocket when the deal is done. As the first response stated, cash is cash regardless if it comes straight out of your bank account or in the form of a transfer from a bank as the result of a buyer’s loan.
Web Reference:  http://www.carlmedford.com
0 votes
Pacita Dimac…, Agent, Oakland, CA
Sat Apr 18, 2009
As they say, "cash is king"....but just because someone is offering cash doesn't mean that it's the stronger offer.

Let's say someone offered $300k for a house listed for $325K. Another offered $325K for a 30-day close. If you were the seller, would you risk waiting 30 days for the $25K difference?

Unless the cash offer has no contingencies llke no buyer inspection, and it can close of escrow the next day,
and an AS IS sale, the cash offer is not necessarily that much stronger than another and higher offer with 30 days escrow, 20% downpayment.

Keep in mind that when one writes an offer, the higher the price, the bigger the deposit, the bigger the down payment, the shorter the escrow and contingency periods, the less credits and repairs requested, the better. Those are the areas where someone taking out a loan can compete with an all-cash buyer.

If you're looking in San Leandro at homes under $300k --- that's the hottest market where you have the largest pool of buyers now competing for the same property. There was a blogger who posted that he and his buyers were pondering whether to write an offer on one property that had 60 offers, and on another that has 30 offers. The reasons? Lower price, lower interest rate, more first time buyer incentives.

So it may be a buyers market...but know the specific market conditions and not from a world view.. Be guided by what your realtor is sharing with you. Don't automatically assume that you can always offer a lower price.

The last three offers I made, we had to compete in a multiple-offer scenario. Yes, it's hard to believe, but that's our LOCAL reality.
0 votes
Ellen Peric, Agent, Pilot Mountain, NC
Sat Apr 18, 2009
Lets put the seller's hat on and look from their perspective... the advantage with cash? Only that you can close faster with less fear that the financing won't go through. So if they want to accept a lower offer (your scenario) and close quickly, then you're in. What would make them take less in a multiple offer situation? Aren't the other buyers really offering cash too - that's what the seller gets at closing - a check.
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