Written By: Andrew Goodman
One of my listings just went under contract with multiple offers; One of which was an all cash offer. The seller asked me, “If I will get my money whether the buyer finances the purchase or pays cash, why is the cash offer so much more appealing?”
I understand the seller’s reasoning and why he would ask that. I explained that the advantage of a cash offer isn’t necessarily the form of funds a seller gets at settlement, but rather, what the seller doesn’t have to worry about during the process.
For instance, a buyer obtaining a mortgage must have an appraisal. Typically, that would come along with an appraisal and financing contingency, which are all risks to the seller. In the event the appraisal comes in low, the seller may not receive what he/she originally thought and instead have to reduce the price to the appraised value. The buyer’s lender will typically only lend up the appraised value and if cash is limited, the seller may have to reduce the sales price to the appraised value to sell the property.
If the buyer is obtaining a mortgage, the buyer must go through the rigorous lending process. The lender may encounter eligibility criteria and/or underwriting conditions that result in amended financing options or denying the buyer financing entirely, which could then lead to the contract falling through.
With a cash offer, there is no mortgage being obtained which means no financing contingency and most likely no appraisal contingency.
So in summary, a cash offer is often superior because it limits the risk of the transaction falling apart and improves the chances of the funds being available at settlement.