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Maximizing Profit: Should I Accept a Cash Offer for My House?

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should I accept a cash offer on my home

“Should I accept a cash offer for my house?” You’ll see a flood of online articles declaring cash home offers come with massive advantages.

Take this article from Money.com, for example; it states that 33.4% of home buyers used cash to pay for their homes in April of 2023.

Cash offers for homes are popular, thanks to mortgages being higher than in decades. Cash home buying is when you make an offer on a property (usually) with cash currency.

There are pros and cons to accepting a cash offer. Read on, because we’ll discuss what cash offers are, why they’re offered, and if they’re worth taking, among other aspects of cash home selling.

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Understanding Cash Offers

To say that “cash offers” involve purchasing a home with cash isn’t quite accurate. They’re better defined as when homeowners skip traditional financing and pay electronically (or with a check) after closing.

Cash offers use what’s called “liquid funds.” Liquid funds (or assets) are either cash or investments you can quickly convert to cash. Non-cash liquid assets are comparable to cash because they keep their value when sold.

These comparable investments include mutual funds, stocks, and bonds. An example of non-liquid assets would be things that depreciate. For example, your diamond ring is a non-liquid asset.

Of course, you can sell the jewelry, but it won’t be worth as much as when you bought it. Your car, furniture, and house are the same. It takes longer to sell these items, and they lose some of their true value.

Why Sellers Get Cash Offers

Before we dig into why sellers get cash offers, let’s talk about who makes these proposals. Here are four types of cash buyers:

  • iBuyers
  • Cash home-buying companies
  • Investors
  • Average homebuyers

iBuyers vs. Cash Home-Buying Companies

iBuyers and cash home-buying companies buy homes from homeowners. These businesses skip the financing stage and deliver cash into the client’s hands (or bank account).

An iBuyer uses algorithms to price client homes fairly. Cash home buyers will have enough experience and pull in their neighborhood to know what your home could sell for.

Both compare your property to similar nearby houses to find their price point. An iBuyer may not operate in your neighborhood despite buying properties there.

For example, an iBuyer could work out of Indiana but buy houses in California, New York, and Mississippi.

Cash home buyers working from Charleston, South Carolina, will buy homes in local areas like North Charleston, Goose Creek, Beaufort, and Summerville.

Both iBuyers and cash-for-sale companies are technically house flippers. They buy discounted homes and renovate them for resale.

The main difference is that most iBuyers prefer to renovate properties in decent condition. A cash-for-sale company will take homes in awful condition and completely overhaul them.

Investors vs. House Flippers

House flipping isn’t a long-term goal. The cash-for-sale company or iBuyer purchases the house, fixes it, and sells it to someone else.

Investors sometimes buy heavily damaged homes and fix them. However, their goal is to create a continuous revenue stream.

Have you ever heard the term “investment property?” People are referring to rentals when they use this phrase. They buy these properties with cash because it’s faster and turn them into passive income.

Average Homebuyers

The average cash-paying homebuyer wants a home to call their own and buys with cash because it’s more convenient. For example, they may have recently moved for work or due to a divorce.

Why Might a Seller Receive a Cash Offer

We’ve discussed who buys a house with cash, but now let’s understand why home buyers offer these proposals. A home seller may receive a cash offer because it’s faster than traditional house buying.

But do you know how much quicker a cash sale is by comparison? Pre-approval for a mortgage can take from an hour to days. The entire application process can take a couple of months.

The rapid sale also accommodates people on tight schedules. Part of why mortgage home purchases take so long is because getting the loan takes time.

A fix and flipper may be in a hurry because they must price properties according to the market. Average homebuyers may need their home quickly because they’re moving for work, or need lodging after the divorce.

Cash home sales can close within a couple of weeks. iBuyers can get you a home estimate within 24 hours. For example, all our process requires is:

  • You provide your address
  • We tell you what your house is worth
  • You get your no-obligation cash offer
  • You close in as little as two weeks
    • Although close dates are flexible and you can choose your own

Home buyers working through an agent can also close a sale within a few weeks. The two most time-consuming steps are the inspection and appraisal.

These can take approximately two weeks to complete together. Everything else from the closing itself to the final walkthrough can take somewhere between hours and a day.

High Mortgages and Better Bidding Power

High interest rates have put many homebuyers off applying for mortgages. The average rate for 30-year-fixed mortgages was 3.38% in 2020. By December 23, 2023, 30-year-fixed mortgages averaged around 7.21%.

Unsurprisingly, people can’t afford or don’t want to deal with those rates. Of course, some people may not want the hassle of monthly mortgage payments and prefer the security of owning their home outright.

Those with enough liquid funds at their disposal also have a bidding advantage. Buyers with cash at their disposal can place better bids quicker than others waiting on traditional financing could.

Advantages of Accepting a Cash Offer

Accepting a cash offer will always be faster than waiting for a loan to go through. Remember, cash sales – through iBuyers or agents – only take a couple of weeks.

You don’t have to wait for loan preapproval or underwriting. A cash offer allows you to accept the deal (or reject it) at your leisure. Selling your home fast comes with various perks.

Firstly, a speedy sale puts fast money in your pocket. This is very advantageous if you need funds for something else in your life. Something else to consider is cash offers let you sell damaged homes swiftly.

A home that needs extensive repairs will cost more and more money as time goes on. Using an iBuyer to get rid of the property removes the issue with little hassle or wasted time.

Reduced Complexity

Traditional home selling is an involved transaction, but selling a house for cash is less work. For example, you can cut the listing process.

Someone selling for cash can forgo appraisals and inspections. This isn’t advisable if you’re selling to a fellow homeowner, but removing these steps reduces the number of papers to review.

People buying with cash sometimes skip contingencies. A contingency is a specific criteria home sellers must meet to complete their home sale. For example, a contingency could be that the home must have new windows.

Many cash sellers are expecting to make repairs, so they’re willing to forgo this bit of contractual repair work. You might not skip closing costs altogether, but they are likely to cost less with a cash sale.

Lower Risk of the Sale Falling Through

Buyers can back out of cash sales, but there are fewer obstacles preventing closing on your home. Lenders often renege on mortgages if homes don’t pass inspections, regardless of buyer interest.

But low appraisals are problematic, too. They’re vital for receiving home loans because they dictate:

  • Interest rates
  • Property taxes
  • How much the buyer’s mortgage is

The latter point is crucial when applying for loans. Lenders want to be sure your home is worth enough to justify paying for it. The appraisal determines if your house is good enough collateral against the loan.

Low appraisals can necessitate lowering your asking price. It’s not unusual for a lender to back out of “failed appraisal” homes because they’re low-income investments.

Cash sales minimize these issues. You should know your home’s fair market price so you don’t cheat yourself or the buyer. But unlike with a mortgage buy, a low appraisal is less likely to ruin a sale.

Potential for As-Is Homes

Lenders don’t care for as-is homes because they can become money traps. Many times buyers will purchase a fixer-upper and sink too much funds into repairs.

This is why lenders and buyers like inspections. Lenders would prefer that your money repay them and homeowners don’t want their new house draining their resources.

Certain iBuyers (like us) or investors won’t care about the condition of your house. You may have offers from average homebuyers that don’t care either.

Disadvantages of Accepting a Cash Offer

We’ve praised cash offer benefits throughout this article, but there are disadvantages to the home cash buying process. The first is that your cash offer might be less than market value.

For clarity’s sake, an average homebuyer may offer close to, if not your exact asking price. The difference between them and an iBuyer (or cash home-buying company) is they’re not trying to turn a profit.

Cash home buyers must use some of their funds to make the properties livable for others. This means that they may not offer you full price so they do more than break even on the eventual sale.

Some Cash Buyers Are Scammers

There are many legitimate iBuyers and cash-buying companies out there. Some people use the title of “cash buyer” to scam others. Here is how to catch a potential scammer:

  • They don’t provide consistent and correct answers to questions
  • You receive unsolicited offers by mail, email, or phone
    • Most trustworthy companies advertise their services
    • The point is for you to contact them
  • They’re unprofessional
    • Conversations should sound and read professionally
    • They should be ready to respond to inquiries
  • Proof of funds is unverifiable
    • A legitimate confirms their finances before the sale
  • They’re using high-pressure sales tactics
  • The offer is too good to be true
    • Offer prices far above your home’s worth are likely scams

Selling for Cash Reduces Competition

A home seller will have buyers competing for their home, whether it’s a buyer’s or seller’s market. That’s because there is always someone that wants a house.

Selling for cash, however, can lower your chances of getting the best price. This is partially due to the potentially lower fee companies will pay for your home.

The other reason there’s less competition is that fewer people are vying for your property in this circumstance. Most people still use mortgages, and cash-for-sale companies don’t come to you – you go to them.

But it’s still not a good idea to take the first home cash offer you get. Someone could come along who’s willing to pay more for your property. You can hear the offer, but don’t accept it immediately; shop around first.

Evaluating Your Situation

There are three things to consider when asking, “Should I accept a cash offer for my house?” The foremost question is if maximum profit or expediency is more important to you. You should then ask yourself:

  • How is the current market?
  • How will a cash sale impact my finances?

Cash home offers are faster, but home-buying companies may offer below-market prices. A mortgage buyer may have a better proposal. Of course, you may have to settle if the market isn’t doing too well.

A rapid sale could be handy if you need a quick lump sum. But a below-market offer could have disastrous consequences on your finances. Fast money isn’t necessarily enough money.

Cash home sales may be fine for people who need speedy sales and are unbothered by below-market offers. A traditional sale is best if your finances can’t survive low offers or you could do better on the market.

The Process of Accepting a Cash Offer

Selling your home for cash isn’t too dissimilar from traditional selling. The major difference is that cash selling is faster, and you can skip a few steps. Here is how the process should go:

  • Determine your home value
  • Find a cash buyer
    • You can use an iBuyer, cash home seller, or realtor
    • The realtor could help find an average homebuyer
  • Assess offers and ask buyers for proof of funds
  • Compare cash offer to home value
  • Sign the contract
  • Get a home inspection
    • You can skip this, but many buyers will want inspections
  • Ensure you’ve got the home title
    • The title is a homeowner’s legal right to a homeownership
    • In this case, it’s your right to transfer property ownership
  • Review and sign closing documents

The closing process is especially significant, as it’s where you handle most of the legalities. You cannot sell your home without signing the deed (document transferring the title) and settling outstanding debts.

Here are a few more papers you can expect to sign at closing:

  • Bill of Sale: lists other personal property sold with the home
  • Affidavit of Title: confirms seller’s legal right to transfer the property
  • Closing Statement: Detailed list of the sale’s financials
  • Certificate of Occupancy
    • Not required in all jurisdictions
    • Confirms that the property meets safety and building codes

Negotiating With Cash Home Buyers

One of the greatest cash offer benefits is there is some wiggle room in the asking price. Still, some people will try to lowball you. Here are some tips to get the most out of your home sale:

  • Counteroffer low bids
    • Price higher than buyer’s low bid but lower than your list price
    • Consider putting a deadline on your counteroffer
      • It’s unethical to disclose that you’re negotiating prices
      • Regardless, deadlines compel buyers to make a decision
  • Consider creating a bidding war
    • Hold an open house
    • The more offers you get, the more buyers will compete
    • Access and negotiate with the highest bids
  • Agree to cover closing costs

Alternatives to Cash Offers

The primary distinction to cash offers is a mortgage. The primary difference between the two is you won’t have pricy loan interest rates with a cash offer. Another difference is that cash sales have no closing costs.

A seller saves money by providing a direct liquid amount. This eliminates realtor fees, inspection fees, and taxes.

However, mortgage buyers do have a distinct advantage. They can use their money for other goals. Spending thousands on a house is a lot, even for some of the richest people.

Mortgages free those funds for things like their children’s college funds, renovations, or investments like stocks and bonds.

Cash Offer Financing: What Is It?

There is a type of cash buying similar to traditional lending called cash offer financing. It allows buyers to make a cash or cash-backed offer for a house.Cash-Offer Mortgages Vs. Cash-Backed Mortgages

Let’s establish that cash-offer and cash-backed mortgages aren’t the same. Cash-offer mortgages are when someone with liquid funds opts to use a mortgage anyway.

Buyers can use the mortgage to pay for the house. They can keep their liquid funds (like bonds) until they appreciate equal to the mortgage. The buyer can then convert the assets to cash and repay the loan.

Power buyers support cash-backed offers as a financial contingency. Homebuyers going this route may not have enough to buy with cash. The power buyer assures their offer goes through.

Here are the steps involved in both types of cash offer financing:

  • Apply and get pre-approved for a mortgage with a cash or cash-backed offer.
  • Work with a real estate agent to find a home
    • Make a cash or cash-backed offer
    • If the seller accepts the offer, the lender may buy the house on the buyer’s behalf after the underwriting process
      • Some lenders buy even if the mortgage isn’t finalized by the contracted closing date
  • Buyers move into the home after closing
    • If the company bought it on the buyer’s behalf, they pay rent until the mortgage comes through

Tips for Considering Cash Offers

Someone who’s successfully sold their house for cash likely followed the steps in our “How to Accept a Cash Offer” section. The reality is that selling for cash is procedural.

There are steps to follow to guarantee everything goes smoothly. Watch out for scammers – high-pressure sales tactics and harassing calls are not what make a good cash-for-sale company.

Something else to note is that there are good reasons to refuse a cash sale. One motive many sellers have for rejecting cash offers is the proposal was too low and the buyer would not budge on the price.

Accepting a low offer can be detrimental to your finances, more so if your home just entered the market. Letting your property sit for a while gives you time to seek out better bids.

Low earnest money is another reason sellers turn down home cash offers. Earnest money is like a deposit to show a homebuyer is serious about the transaction. Remember how we talked about cash-backed mortgages?

The buyer has some funds to put toward the sale, but the lender compensates for the rest. That startup money is their earnest funds.

They’re putting forward cash to show the lender it’s worth working with them. Accepting a cash sale works similarly. Buyers with too many contingencies get passed up for cash sales quite often.

Contingencies can become time-consuming and costly. It’s reasonable to skip over these buyers if these caveats are too much of a hassle.

Both parties must agree on the close date. While you must accommodate the buyer to some degree, that shouldn’t be at the cost of your needs. Sellers don’t have to force themselves to agree on inconvenient close dates.

Should I Accept a Cash Offer for My House?

Home cash offers come with many advantages. The sales process is quicker, you get paid faster, and there is more negotiation flexibility.

However, you may receive lowball offers, and there’s less competition for your home and unscrupulous people looking to scam you. Consider your financial and housing needs before asking “Should I accept a cash offer for my house.”

If you have decided to sell your home for cash, iBuyer is willing to help you every step of the way. Our proprietary technology can instantly find the best value for your home. Use our Home Value Estimator to begin your home-selling journey.

Interested in your home’s current market value? Receive a free online home value estimate!

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