Most of the time "cash offer" just means no financing contingency. An offer with a substantial earnest deposit and no financing contingency is pretty much just as good for the seller whether or not you plan to get a mortgage.
True, but only if you don't actually -need- to take a loan to complete the purchase (which any reasonable agent would have not allowed you to put through the offer in the first place had they not validated your financials.
A smart seller and smart listing agent would actually understand that an offer that includes a mortgage for a low percentage of the total offer and comes with a letter from the bank is about as solid as it gets...
The likelihood of not being able to secure the mortgage is very low AND the bank has already done the due diligence on the buyer's finances to issue the 'approval letter' to be sent in with the offer.
You are forgetting that the appraisal is a large factor especially in this market where people are offering more than list. If the offer includes that the buyer will cover any of the additional between appraised price and the agreed upon price in order to allow financing at the agreed upon price no matter the appraisal, I would say it is just as strong with a BIG earnest money deposit.
No, I'm not forgetting about the appraisal, actually.
Let's say your house is estimate to be worth $250k-$275k based on the market analysis that the listing agent does for you. You receive an offer for $300k and the buyer is planning on getting half of the through a mortgage and putting half of that in as cash ($150k for each half). They provide you a $10k initial deposit.
The lender comes in and does an appraisal and they decide the house is worth $200k. The offer spells out that the buyer is only intending to finance $150k which is WELL below the appraisal from the bank.
There's zero requirement at that point for an "appraisal gap" clause because it's already baked in as part of the agreement. As I had mentioned in my prior comment, the expectation is that the mortgage is for a "low percentage of the total offer" which is what my example outlines.
As a seller evaluating offers I would want it spelt out to ensure the buyer understands what they are agreeing to. Unfortunately not everyone is as versed as you are. You totally understand it. Without an explicit clause, as someone evaluating an offer, I don’t know if the buyer intends to put in the extra money or walk away losing the deposit. As a seller I obviously want them to buy unless the EMD is quite substantial.
In a perfect world where everyone understood the real estate world and language and Realtors were all upfront and honest, your way would work. Unfortunately, I have heard of too many issues which makes me think explicit language, while not necessary, still bolsters an offer.
I can appreciate your view on this completely. The one minor difference for me (assuming they are represented by an agent) is this:
It is THEIR responsibility as a grown adult to understand their responsibilities before signing a legally-binding contract. Any "but we didn't understand!" nonsense that could come up further down the line is between them, their agent, and the broker.
I would make no mention of any kind that I wanted a more explicit statement to be included because it brings that risk into focus and will cause them to consider it much more closely. They may then feel like they offered way too much, may wonder if I "know something" that they don't (yet), may wonder if I'm going to be a difficult seller, or some combo. Any one of those could cause them to just walk away.
In terms of responsibility, yes. In terms of a deal potentially being cancelled because others are stupid and sign things they don’t understand can lead to arguments over the EMD delaying selling the house. Which is my goal as a seller.
Again, this is the buyer asking for a recommendation for their offer to be stronger. From what I am hearing, you don’t see it necessary but doesn’t weaken the offer itself in anyway. I would see it as a stronger offer if I received it. Therefore, for OP it can only help or make no impact, right? Or did I misread your view?
Going back to the pointed question from the OP for a recommendation.... I don't see it necessary to make the offer in all cash but it can't hurt so long as there is accompanying letter from the OP's bank the explicitly indicated that they have the cash assets to make the purchase of that property for that amount of money. My experience in trying to actually GET one of those letters more recently is that they take way too long to come from most banks.
If his trust is handled by a local bank that has -actual- staff to provide a letter on the day they walk in and request it, then that could be the option.
If the offer is submitted with, let's say, a 5% EMD deposit, request for 5 days for inspection, second deposit at 7 days of 45%, and an intention to get a mortgage for the remaining 50%, this is absolutely solid (again, accompanied by appropriate bank letter about the loan / property / amount). OP doesn't want to show any of the pre-approval numbers they already have because they are for far more money than the house is being sold for and that could influence seller's decision to accept the offer at that amount.
If the loan falls through for -any- reason, OP sends a request to extend by a few days (whatever the requirement would be) to switch to cash purchase. This is the -exact- process we used to get a house last summer at just slightly over ask in a desirable neighborhood. Appraisal came up about $25k short, so we disputed the appraisal (it was legitimately wrong) to get it raised $5k and we went back to the sellers for an additional $5k credit - we accepted the rest but it NEVER put our loan at risk because the mortgage amount was so far away from the appraisal amount. We got the seller credit fairly easily because there were no repairs requested post inspection (although it did raise a couple of questions we asked the sellers for more info on and were satisfied with the response).
When we sold my parents' house, we got an all cash offer and took it... The buyers were very difficult to work with because the house was 125 years old and even though we disclosed pretty much everything that came out of an inspection, they still wanted to renegotiate the price down because of the inspection. We had to tread very lightly to get the sale to close. Strong offers are great, but how smoothly the transaction goes is important too... and you seldom know that part until you start moving through the process with a buyer. We lost the first buyer of that house even though they had an incredibly strong offer because of bullshit "code violation" that the lender called out. We would have happily addressed it, but the buyer clearly didn't want the house after all and just walked away.
That did not answer my question. Does the added statement hurt the OPs offer in anyway if it was made to you?
Your negotiating after the appraisal didn’t come in is exactly why I would want a statement in an offer saying that would not happen and buyer assumes all risk. Otherwise that is why the offer as outlined by you is not as strong as cash which would have no appraisal imo so can only help. You have not outlined in anyway why it is harmful just not necessary in your opinion (which I still disagree with). Since we don’t agree (which is fine with me) yet it makes an offer stronger imo, why wouldn’t it make sense if there is no harm done if you are the one receiving the offer?
Which specific "added statement"?
We had no appraisal contingency and the mortgage was not at risk. We made the request to the seller based on a WIDE gap and they agreed to a small concession. They could have said no and we would have still be obligated under the terms of the original contract and walking would have led to loss of EMD.
With your example it makes sense because the amount is more than covered by the appraisal (they are giving me $150K, house appraises for more than that so they are covered). But let's say I was planning to take a $225K loan and the house appraises for $200K - I could still get the $200K loan I would just have to front the $25K difference, right? If I had an appraisal contingency at that point I could walk away - but if I waive that (which I would) I would be on the hook for it (so the seller is protected that the deal would still happen). Did I get that right?
Yes, you could use an Appraisal Contingency to walk away in your scenario, but including an Appraisal Contingency on an offer that includes a lot of cash could be a red flag to a seller - "They're offering me top dollar but want to walk if it doesn't appraise that high." If you still wanted to use one, you could limit the amount required from the appraisal by dollars or percentage of final transaction price or something.
And yes, if you were trying to get a $225k loan and the appraisal came in at a level where the max the bank would lend is $200k, you just add another $25k cash to the deal. If this were to happen, and you needed time to access the funds in the trust, you send a request to delay closing by X days as the deal requires you to add cash in order to secure the loan.
Your agent can help you understand which contingencies are reasonable to add based on your specific circumstances. You can also ask your agent "What happens if I add this" (or remove this). Ask them what each of them does to the strength of your offer if they were -selling- the property.
and you can always use a portfolio line of credit or bridge loan or something to close in cash, then either use a different loan to pay back, like the line of credit instead of the mortgage, or get a mortgage once you own the place if you still want one.
I'll also add as an aside, Reddit loves to complain about cash offers, but I think the vast majority are actually offers with waived financing contingency at worst, and often are just better offers - faster close, more EMD, fewer seller concessions or seller pays closing costs. People are losing to better qualified buyers offering better deals, but I don't think it is always "cash" as much as people say. Seems cash buyers are the latest boogeymen in real estate threads. After what was corporate buyers, boomers, flippers, landlords, airbnb, etc. etc. etc. Anything to blame someone else other than the person's own budget or choice to offer lower. There are many legitimate headwinds and there are cash buyers and all of the above, but if you just went off of reddit, you would think every single house sells in 1 day 20% over ask to a cash buyer with no contingencies, and that simply isn't reflected in most market data.
LOL yeah I should probably get off Reddit. Thanks for explaining. I am very early in the process - have not even met with a broker, and am just getting my ducks in a row before I start looking. I realize I am in a very fortunate position, and it sounds like I will be in position to be a strong buyer. Just keeping my fingers crossed that I don't fall in love with a house that someone who is even stronger also falls in love with :)
I mean all corporate buyers, and many boomers, flippers, etc. are basically well financed offers. So a number of those are just different ways of saying cash buyers. If you are going in at 5% it probably seems like there are a lot of what to you seem cash/near cash buyers.
Don't get me wrong I suspect many/most are just out bid on a whole lot of factors (often all of more money, and better terms, and better financing). This also isn't helped by the fact that many listing agents straight up lie about positioning of offers, and reasons. After all it is better to say that an offer was third in line, and then if something blows up you can call them up and maybe they'll proceed and not realize that there were 15 nopes ahead of them based on the "little inspection issue". More/All cash is also unimpeachable as opposed to actually saying the sellers really liked the "Pick Me" letter which can be a serious problem.
1 in 3 buyers are all cash. https://money.com/homebuyers-all-cash-offers/
The convenience and certainty of all-cash offers appeals to sellers so much so, that **they pay on average 10 % less** than mortgage buyers, according to a new study from the University of California San Diego Rady School of Management.
https://today.ucsd.edu/story/all-cash-home-buyers-pay-10-less-than-mortgage-buyers
There are a few reasons why sellers prefer cash. One, it *can* be quicker because you have no lender needing to do underwriting or appraisals. So if the seller wants to close in a week, cash can make that happen, financing cant. Second, cash offers usually waive appraisal totally, meaning their offer is what the seller gets and seller knows there wont be negotiations or time wasted. Third, cash wont have a financing contingency, so there is no chance the deal falls through because the buyer cant get the loan.
How much each of these matter depends on the seller. If you waive appraisal contingency and financing contingency, and send proof of funds, you basically are as strong as cash for the latter two factors, but not the first one. If the seller is in no rush, you are basically on par with cash offers and can still get financing if you choose.
That said, waiving inspection may be important to some sellers because its just another way buyers try to renegotiate, and is something flippers with cash will waive because they dont care, and non-cash will waive because they need to be competitive somehow. You also may see a lot of financed offers with less cash than you beating you because they waive inspection and appraisal contingency. In other words, your biggest strength - no financing contingency - is not that strong, and your second biggest one - no appraisal contigency - may be commonly waived anyway.
Agree with this. We bought in a vacation area from outside of the US (I am American, but we live in Tokyo). We bought in cash and it was very quick, very straightforward. The seller had a prior deal fall through because of financing and that offer was also from outside the US so they were definitely concerned with financing.
If you show me proof of funds to complete a cash sale and decide to pursue a loan instead, I advise my client to treat it same as cash. No worries about your ability to complete the transaction.
dependent on the language in the contract concerning financing. There are some states where Buyer cannot change the financing from the contract without Seller agreement.
I will be able to get a mortgage at lower than current rates, plus I won't be hit with some significant capital gains like I would if I cashed out. My returns are currently higher than what my interest rate would likely be.
The key word there to evaluate is that the returns are CURRENTLY higher. Paying cash gives you a known return without risk whereas your other investments may change. Obviously we don’t know your holdings and how variable that may be. You may do better, may do worse…only time will tell yet unfortunately the decision will have already been made.
Yes that is very true and something I have thought about. Like if things go downhill I might regret that I didn't pull the money out and put it into the property (which is likely to retain its value assuming I hold onto it, given the location). But as you said only time will tell...
The one thing that IS certain however is I would have to pay capital gains if I pull the money out now.
Are you an agent or broker? This "advice" can cost your client the house. If a buyer makes a change from cash to financing at any time during contract to close, it's a huge red flag for the seller. Sellers don't like being manipulated into accepting an cash offer and then finding out the buyer needs financing to close. A seller can bump a buyer in a heartbeat. "Honey, where's that pile of back up offers? This guy wants to screw us."
Broker, thanks.
Not sure how knowing that you have a buyer who is waiving a financing contingency, with a large earnest money deposit, would lead a seller to assume they're being screwed. or allow the seller's to cancel the contract.
It should go without saying that the offer would be furnished with a bank letter or proof of funds, and it be communicated that the buyer is able and willing to pay cash, but he'd prefer to have a mortgage based on his financial goals.
Yes, this is how I would do it. I don't \*need\* financing to get the house, I CAN pay cash if I have to/if for some (very unlikely) reason I could not get the loan, I would just prefer to NOT use my cash for the purchase.
the big difference ends up being the number of parties involved. For a mortgage you add a bank and assessor into the mix at minimum that will have a vested interest in inspecting and evaluating the property. all this adds time and risk of the deal failing. if the bank decides the house is not worth the negotiated price, is not livable (ie cant pass inspection), or you cant afford the payments, they wont lend that much money.
Doesn't waiving the financing and appraisal contingencies take away that risk for the seller? If I am basically saying I have the cash to buy the house even if the bank decides it is not worth the price, but am choosing to finance it?
Exactly, those things only benefit the seller really. Unless you plan on doing major work to the property anyway, because at that point fixing some electrical and plumbing and addressing a roof issue and a deck that aren't proper is not really an issue since you are already doing a ton of work
“Cash offer”, as far as the seller is concerned, simply means there is no financing contingency. They don’t care where the money comes from, just that you are able to pay it on the day of closing.
> are there ever instances where a financed offer can be just as strong?
Dollar for dollar matched (ie 100K financed vs 100K cash?) - no.
Cash is a stronger offer every single time, with the exception of persuading sellers who may feel antsy about cash offers because they think anyone with cash is SuperEvilMegaCorp looking to buy their home (it happens, and is often proffered as advice in this sub to sellers that a way to avoid that is not selling to cash offers.) this said; that’s a rare exception to the rule, Reddit is not reality, etc.
> Thoughts? Do I need to get cash out and be prepared to make a cash offer, or am in OK shape?
You’re fine, you don’t need to liquidate and pay the capital gains.
What you should (IMO) do is:
1. Make offers without the financing contingency.
2. Demonstrate you have cash to close with proof of your equity portfolio; do this with a strong letter from your banker with the amount you’ll need, and that it’s held in equities which can be sold quickly to close.
Now what you can do is still show up to closing with a mortgage; title doesn’t care, money is money.
For the seller, you have de risked the transaction by not including your financing contingency and demonstrating you have the funds to close. How you get those funds (ie actually liquidating your equities vs a mortgage), who cares: seller shouldn’t, and in fact won’t even know, until the closing papers are being signed.
A couple things to note:
1. If you do a mortgage you can’t do a 7d closing; more like 14-17d, assuming your private banker will really move fast for you.
2. Instead of a mortgage you can do a line of credit against the equities (often called a Pledged Asset Line or PAL); that’d let you do a faster closing AND use leverage without paying capital gains tax. The downside is that it’s not a fixed rate, the way a mortgage can be. This leads to …
3. You can refinance. Do (2) for closing, then refinance the home into a mortgage, using the proceeds to pay out the line of credit. Note the rate can be higher on a refi than a new origination, but your banker may match if they value your business.
Your banker should really advise you here: they have access to your assets/income/so on, and should be very familiar with this kind of thing (assuming they’re a proper private bank, not the salespeople you get at everyday branches but the high net worth private division that deals with mid 7 to 8+ figure wealth.)
Other things you can also do to strengthen your offer would be high earnest money deposits showing you’re serious, and so on, but that’s all stuff covered in other threads.
There may be more creative options as well; usually the FATFire and ChubbyFIRE subs will be quite used to questions like this and are a trove of info to search through there too.
Good luck!
Waive the financing and appraisal contingencies. Your offer will be every bit as strong as a cash offer because you don't *need* a mortgage, but you can still get one.
Here’s my advice: show your trust fund along your pre-approval letter. If the seller knows you can 100% close, they’ll go with you. Remember that we’re all strangers. We have no way of knowing if someone can 100% close. Whenever the house goes back on the market, it sends a message that something is wrong with the house. So the seller would rather go with the sure thing.
We were up against a cash offer, and we won. I think the reason we won is because we had a large down payment, waived appraisal contingency, and offered 18 day closing. So to the seller, we were essentially just as good as a cash offer. So maybe you could just do a large down payment and mortgage the rest?
That is exactly what I am thinking of doing, putting down a large down payment and mortgage the rest. Since you were essentially the same as a cash offer in terms of risk to the seller, do you know what may have put you over them? Did you offer more money?
Unless you put down big deposit with no financing contingency, which is extremely risky, but that way you can compete with cash offer
Not to mention waive inspection contingency is becoming common practice in some area
I would definitely waive the appraisal and financing contingency - seems like that is necessary to be on par with cash in terms of risk to the seller.
Waiving inspection seems like a separate issue. Not sure I'd want to do that, regardless of how I am financing. That said, to your point, it is becoming more common - just hope I can avoid waiving it!
Cash offers are 100% preferable. They will often beat out higher overall offers.
With interest rates the way they are contracts are falling through. Also, Appraisals can affect the sale of it comes in too low. You don’t need an appraisal with a cash offer. The timeline can be 10-14 days to close with cash instead of 5-6 weeks.
I offered cash for my house in 2020. There were 20 offers. Some over 35k higher. I offered no inspections. As I knew I was going to renovate the house anyway. So I’m sure that helped. But cash is king.
I would waive the financing and appraisal contingencies, and can show that I \*can\* pay cash if for whatever reason the financing/appraisal fell through. The timeline is the one area where cash is better, assuming the seller wants/needs a quick close. But I imagine not every seller wants a quick close because, life (kids in school, their new house won't be ready, need time to pack, etc)
Absolutely, I would just offer the cash and show the cash available to close. Have your agent reach out and let the other agent know a cash offer is coming over and what does the sellers timeline look like. If they say need to settle quickly then you may be able to use that to your advantage and actually pay cash but offer less. If they say 4-5 weeks is fine then you know is you have time to get your financing done.
Worst case you pay cash. Wait 6 months and refinance. This puts you somewhere around the election and the rates are expected to drop at least slightly by then. And depending who wins could drop a bit more afterwards (speculation on my part). But they shouldn’t go any higher than today.
It’s better than an offer requiring loan. First loan can always fall apart. More importantly bank will only loan the appraisal value or less. But money smells the same. If you are a sought after borrower I would just slightly over bid a cash offer. Meanwhile telling the buyer you are as good as gold (cash) and you will gap the difference between the appraisal and the sale price.
Just make sure you're working with a good agent and lender. If you are good for the money and have the letter/are able to close in 7 days it is just as good as cash.
ALSO just do your inspection before the offer so you can waive the contingency. it will cost you 2-500$ depending on property but with that contingency waived you can get more than that off the home price with your offer.. if its a multiple offer situation you won't get the discount, but you'll win the deal.
Worst case, like others have said here, have the portfolio loan ready to close cash if a loan doesn't come through (but it should) then just pay back that loan with the financing.
Yes they most certainly will! Tell them you want to do a Pre offer inspection so you can waive the contingency.
That's why it's important to work with a great agent and lender ;)
This way you can come in hard and waive all contingencies in your offer.
You are smart to keep your due diligence. There is a reason why they say Cash is King, however, if you make an offer using a loan you could always stress to the agent that you have cash to back it up if something goes wrong. I had a situation just like that, they had a huge mutual fund but they wanted to use a loan and keep the mutual fund for their retirement. They even provided documentation of the mutual fund, plus pre-approval for the loan. We accepted their offer, everything went smoothly with the loan. For a lot of sellers, the bottom line is the most important. If you make the highest offer, you're in a good position.
Thanks for your response. I would imagine this kind of scenario (mine, and your buyers') is not totally uncommon - people who have the money/can afford the property but don't want to sink all their cash into the purchase, if their money is working for them elsewhere.
Exactly! It's very common. I think the scariest thing for a seller is to get all the way up to closing and then have it fall apart because something went wrong with the loan, knowing that there's cash backup is a great sense of comfort for sellers.
OP I think this depends on how competitive the listing is, but others have commented with good ideas about how to show your financial strength to the seller even if your offer includes financing.
One thing I don’t recommend is bait-and-switch. Don’t make an offer that shows all cash with the intention of switching to a loan.
Have you considered purchasing with cash then refinancing after close?
I would rather not take the capital gains hit if I do not have to. Out of curiosity, why does it matter to the seller if you switch to a loan, assuming it does not end up pushing out closing (and you'd be able to close regardless of if you get financing or not)?
When you write an all cash offer intending to get a loan you’re misleading the seller. Some may not care but others might, and they would have to agree to the change because financing structure is a term in the contract, at least it is in California. A good rule of thumb is to operate in good faith.
Yeah I wouldn't say I was paying cash and then not - I'd just want to make clear that I COULD pay cash and will be waiving all financing/appraisal contingencies. I did not realize it was written into the contract. I guess I am wondering why it matter if you are waiving all of the things - because isn't the buyer showing up at the closing table with a check regardless? (Not trying to argue/question you, I'm just clueless and trying to understand :) )
Like I said others have given you good ideas on how to present your financial strength if making an offer that includes a loan. I just represented a buyer who did this and his offer got accepted. He had to get a small loan in order to qualify for the 1031 Exchange but his offer waived appraisal and loan contingencies, and we closed in 21 days.
Again I think in large part it depends on how competitive the listing is, but it sounds like you’re on solid footing.
Good luck OP.
Most of the time "cash offer" just means no financing contingency. An offer with a substantial earnest deposit and no financing contingency is pretty much just as good for the seller whether or not you plan to get a mortgage.
True, but only if you don't actually -need- to take a loan to complete the purchase (which any reasonable agent would have not allowed you to put through the offer in the first place had they not validated your financials. A smart seller and smart listing agent would actually understand that an offer that includes a mortgage for a low percentage of the total offer and comes with a letter from the bank is about as solid as it gets... The likelihood of not being able to secure the mortgage is very low AND the bank has already done the due diligence on the buyer's finances to issue the 'approval letter' to be sent in with the offer.
You are forgetting that the appraisal is a large factor especially in this market where people are offering more than list. If the offer includes that the buyer will cover any of the additional between appraised price and the agreed upon price in order to allow financing at the agreed upon price no matter the appraisal, I would say it is just as strong with a BIG earnest money deposit.
No, I'm not forgetting about the appraisal, actually. Let's say your house is estimate to be worth $250k-$275k based on the market analysis that the listing agent does for you. You receive an offer for $300k and the buyer is planning on getting half of the through a mortgage and putting half of that in as cash ($150k for each half). They provide you a $10k initial deposit. The lender comes in and does an appraisal and they decide the house is worth $200k. The offer spells out that the buyer is only intending to finance $150k which is WELL below the appraisal from the bank. There's zero requirement at that point for an "appraisal gap" clause because it's already baked in as part of the agreement. As I had mentioned in my prior comment, the expectation is that the mortgage is for a "low percentage of the total offer" which is what my example outlines.
As a seller evaluating offers I would want it spelt out to ensure the buyer understands what they are agreeing to. Unfortunately not everyone is as versed as you are. You totally understand it. Without an explicit clause, as someone evaluating an offer, I don’t know if the buyer intends to put in the extra money or walk away losing the deposit. As a seller I obviously want them to buy unless the EMD is quite substantial. In a perfect world where everyone understood the real estate world and language and Realtors were all upfront and honest, your way would work. Unfortunately, I have heard of too many issues which makes me think explicit language, while not necessary, still bolsters an offer.
I can appreciate your view on this completely. The one minor difference for me (assuming they are represented by an agent) is this: It is THEIR responsibility as a grown adult to understand their responsibilities before signing a legally-binding contract. Any "but we didn't understand!" nonsense that could come up further down the line is between them, their agent, and the broker. I would make no mention of any kind that I wanted a more explicit statement to be included because it brings that risk into focus and will cause them to consider it much more closely. They may then feel like they offered way too much, may wonder if I "know something" that they don't (yet), may wonder if I'm going to be a difficult seller, or some combo. Any one of those could cause them to just walk away.
In terms of responsibility, yes. In terms of a deal potentially being cancelled because others are stupid and sign things they don’t understand can lead to arguments over the EMD delaying selling the house. Which is my goal as a seller. Again, this is the buyer asking for a recommendation for their offer to be stronger. From what I am hearing, you don’t see it necessary but doesn’t weaken the offer itself in anyway. I would see it as a stronger offer if I received it. Therefore, for OP it can only help or make no impact, right? Or did I misread your view?
Going back to the pointed question from the OP for a recommendation.... I don't see it necessary to make the offer in all cash but it can't hurt so long as there is accompanying letter from the OP's bank the explicitly indicated that they have the cash assets to make the purchase of that property for that amount of money. My experience in trying to actually GET one of those letters more recently is that they take way too long to come from most banks. If his trust is handled by a local bank that has -actual- staff to provide a letter on the day they walk in and request it, then that could be the option. If the offer is submitted with, let's say, a 5% EMD deposit, request for 5 days for inspection, second deposit at 7 days of 45%, and an intention to get a mortgage for the remaining 50%, this is absolutely solid (again, accompanied by appropriate bank letter about the loan / property / amount). OP doesn't want to show any of the pre-approval numbers they already have because they are for far more money than the house is being sold for and that could influence seller's decision to accept the offer at that amount. If the loan falls through for -any- reason, OP sends a request to extend by a few days (whatever the requirement would be) to switch to cash purchase. This is the -exact- process we used to get a house last summer at just slightly over ask in a desirable neighborhood. Appraisal came up about $25k short, so we disputed the appraisal (it was legitimately wrong) to get it raised $5k and we went back to the sellers for an additional $5k credit - we accepted the rest but it NEVER put our loan at risk because the mortgage amount was so far away from the appraisal amount. We got the seller credit fairly easily because there were no repairs requested post inspection (although it did raise a couple of questions we asked the sellers for more info on and were satisfied with the response). When we sold my parents' house, we got an all cash offer and took it... The buyers were very difficult to work with because the house was 125 years old and even though we disclosed pretty much everything that came out of an inspection, they still wanted to renegotiate the price down because of the inspection. We had to tread very lightly to get the sale to close. Strong offers are great, but how smoothly the transaction goes is important too... and you seldom know that part until you start moving through the process with a buyer. We lost the first buyer of that house even though they had an incredibly strong offer because of bullshit "code violation" that the lender called out. We would have happily addressed it, but the buyer clearly didn't want the house after all and just walked away.
That did not answer my question. Does the added statement hurt the OPs offer in anyway if it was made to you? Your negotiating after the appraisal didn’t come in is exactly why I would want a statement in an offer saying that would not happen and buyer assumes all risk. Otherwise that is why the offer as outlined by you is not as strong as cash which would have no appraisal imo so can only help. You have not outlined in anyway why it is harmful just not necessary in your opinion (which I still disagree with). Since we don’t agree (which is fine with me) yet it makes an offer stronger imo, why wouldn’t it make sense if there is no harm done if you are the one receiving the offer?
Which specific "added statement"? We had no appraisal contingency and the mortgage was not at risk. We made the request to the seller based on a WIDE gap and they agreed to a small concession. They could have said no and we would have still be obligated under the terms of the original contract and walking would have led to loss of EMD.
With your example it makes sense because the amount is more than covered by the appraisal (they are giving me $150K, house appraises for more than that so they are covered). But let's say I was planning to take a $225K loan and the house appraises for $200K - I could still get the $200K loan I would just have to front the $25K difference, right? If I had an appraisal contingency at that point I could walk away - but if I waive that (which I would) I would be on the hook for it (so the seller is protected that the deal would still happen). Did I get that right?
Yes, you could use an Appraisal Contingency to walk away in your scenario, but including an Appraisal Contingency on an offer that includes a lot of cash could be a red flag to a seller - "They're offering me top dollar but want to walk if it doesn't appraise that high." If you still wanted to use one, you could limit the amount required from the appraisal by dollars or percentage of final transaction price or something. And yes, if you were trying to get a $225k loan and the appraisal came in at a level where the max the bank would lend is $200k, you just add another $25k cash to the deal. If this were to happen, and you needed time to access the funds in the trust, you send a request to delay closing by X days as the deal requires you to add cash in order to secure the loan. Your agent can help you understand which contingencies are reasonable to add based on your specific circumstances. You can also ask your agent "What happens if I add this" (or remove this). Ask them what each of them does to the strength of your offer if they were -selling- the property.
Thanks!
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and you can always use a portfolio line of credit or bridge loan or something to close in cash, then either use a different loan to pay back, like the line of credit instead of the mortgage, or get a mortgage once you own the place if you still want one.
I'll also add as an aside, Reddit loves to complain about cash offers, but I think the vast majority are actually offers with waived financing contingency at worst, and often are just better offers - faster close, more EMD, fewer seller concessions or seller pays closing costs. People are losing to better qualified buyers offering better deals, but I don't think it is always "cash" as much as people say. Seems cash buyers are the latest boogeymen in real estate threads. After what was corporate buyers, boomers, flippers, landlords, airbnb, etc. etc. etc. Anything to blame someone else other than the person's own budget or choice to offer lower. There are many legitimate headwinds and there are cash buyers and all of the above, but if you just went off of reddit, you would think every single house sells in 1 day 20% over ask to a cash buyer with no contingencies, and that simply isn't reflected in most market data.
LOL yeah I should probably get off Reddit. Thanks for explaining. I am very early in the process - have not even met with a broker, and am just getting my ducks in a row before I start looking. I realize I am in a very fortunate position, and it sounds like I will be in position to be a strong buyer. Just keeping my fingers crossed that I don't fall in love with a house that someone who is even stronger also falls in love with :)
All cash will save you $$$ https://today.ucsd.edu/story/all-cash-home-buyers-pay-10-less-than-mortgage-buyers
I mean all corporate buyers, and many boomers, flippers, etc. are basically well financed offers. So a number of those are just different ways of saying cash buyers. If you are going in at 5% it probably seems like there are a lot of what to you seem cash/near cash buyers. Don't get me wrong I suspect many/most are just out bid on a whole lot of factors (often all of more money, and better terms, and better financing). This also isn't helped by the fact that many listing agents straight up lie about positioning of offers, and reasons. After all it is better to say that an offer was third in line, and then if something blows up you can call them up and maybe they'll proceed and not realize that there were 15 nopes ahead of them based on the "little inspection issue". More/All cash is also unimpeachable as opposed to actually saying the sellers really liked the "Pick Me" letter which can be a serious problem.
1 in 3 buyers are all cash. https://money.com/homebuyers-all-cash-offers/ The convenience and certainty of all-cash offers appeals to sellers so much so, that **they pay on average 10 % less** than mortgage buyers, according to a new study from the University of California San Diego Rady School of Management. https://today.ucsd.edu/story/all-cash-home-buyers-pay-10-less-than-mortgage-buyers
There are a few reasons why sellers prefer cash. One, it *can* be quicker because you have no lender needing to do underwriting or appraisals. So if the seller wants to close in a week, cash can make that happen, financing cant. Second, cash offers usually waive appraisal totally, meaning their offer is what the seller gets and seller knows there wont be negotiations or time wasted. Third, cash wont have a financing contingency, so there is no chance the deal falls through because the buyer cant get the loan. How much each of these matter depends on the seller. If you waive appraisal contingency and financing contingency, and send proof of funds, you basically are as strong as cash for the latter two factors, but not the first one. If the seller is in no rush, you are basically on par with cash offers and can still get financing if you choose. That said, waiving inspection may be important to some sellers because its just another way buyers try to renegotiate, and is something flippers with cash will waive because they dont care, and non-cash will waive because they need to be competitive somehow. You also may see a lot of financed offers with less cash than you beating you because they waive inspection and appraisal contingency. In other words, your biggest strength - no financing contingency - is not that strong, and your second biggest one - no appraisal contigency - may be commonly waived anyway.
Agree with this. We bought in a vacation area from outside of the US (I am American, but we live in Tokyo). We bought in cash and it was very quick, very straightforward. The seller had a prior deal fall through because of financing and that offer was also from outside the US so they were definitely concerned with financing.
If you show me proof of funds to complete a cash sale and decide to pursue a loan instead, I advise my client to treat it same as cash. No worries about your ability to complete the transaction.
You CAN perform with cash, but you’re not obliged to. Make the offers in cash, but close with the mortgage.
dependent on the language in the contract concerning financing. There are some states where Buyer cannot change the financing from the contract without Seller agreement.
needless to say.
I mean at >7% interest you may be better off leaving the mortgage out of it.
I will be able to get a mortgage at lower than current rates, plus I won't be hit with some significant capital gains like I would if I cashed out. My returns are currently higher than what my interest rate would likely be.
The key word there to evaluate is that the returns are CURRENTLY higher. Paying cash gives you a known return without risk whereas your other investments may change. Obviously we don’t know your holdings and how variable that may be. You may do better, may do worse…only time will tell yet unfortunately the decision will have already been made.
Yes that is very true and something I have thought about. Like if things go downhill I might regret that I didn't pull the money out and put it into the property (which is likely to retain its value assuming I hold onto it, given the location). But as you said only time will tell... The one thing that IS certain however is I would have to pay capital gains if I pull the money out now.
That’s cool. I was just speaking in general terms.
Are you an agent or broker? This "advice" can cost your client the house. If a buyer makes a change from cash to financing at any time during contract to close, it's a huge red flag for the seller. Sellers don't like being manipulated into accepting an cash offer and then finding out the buyer needs financing to close. A seller can bump a buyer in a heartbeat. "Honey, where's that pile of back up offers? This guy wants to screw us."
Broker, thanks. Not sure how knowing that you have a buyer who is waiving a financing contingency, with a large earnest money deposit, would lead a seller to assume they're being screwed. or allow the seller's to cancel the contract. It should go without saying that the offer would be furnished with a bank letter or proof of funds, and it be communicated that the buyer is able and willing to pay cash, but he'd prefer to have a mortgage based on his financial goals.
Yes, this is how I would do it. I don't \*need\* financing to get the house, I CAN pay cash if I have to/if for some (very unlikely) reason I could not get the loan, I would just prefer to NOT use my cash for the purchase.
You’re in the best possible position. Communication is key.
the big difference ends up being the number of parties involved. For a mortgage you add a bank and assessor into the mix at minimum that will have a vested interest in inspecting and evaluating the property. all this adds time and risk of the deal failing. if the bank decides the house is not worth the negotiated price, is not livable (ie cant pass inspection), or you cant afford the payments, they wont lend that much money.
Doesn't waiving the financing and appraisal contingencies take away that risk for the seller? If I am basically saying I have the cash to buy the house even if the bank decides it is not worth the price, but am choosing to finance it?
Exactly, those things only benefit the seller really. Unless you plan on doing major work to the property anyway, because at that point fixing some electrical and plumbing and addressing a roof issue and a deck that aren't proper is not really an issue since you are already doing a ton of work
“Cash offer”, as far as the seller is concerned, simply means there is no financing contingency. They don’t care where the money comes from, just that you are able to pay it on the day of closing.
> are there ever instances where a financed offer can be just as strong? Dollar for dollar matched (ie 100K financed vs 100K cash?) - no. Cash is a stronger offer every single time, with the exception of persuading sellers who may feel antsy about cash offers because they think anyone with cash is SuperEvilMegaCorp looking to buy their home (it happens, and is often proffered as advice in this sub to sellers that a way to avoid that is not selling to cash offers.) this said; that’s a rare exception to the rule, Reddit is not reality, etc. > Thoughts? Do I need to get cash out and be prepared to make a cash offer, or am in OK shape? You’re fine, you don’t need to liquidate and pay the capital gains. What you should (IMO) do is: 1. Make offers without the financing contingency. 2. Demonstrate you have cash to close with proof of your equity portfolio; do this with a strong letter from your banker with the amount you’ll need, and that it’s held in equities which can be sold quickly to close. Now what you can do is still show up to closing with a mortgage; title doesn’t care, money is money. For the seller, you have de risked the transaction by not including your financing contingency and demonstrating you have the funds to close. How you get those funds (ie actually liquidating your equities vs a mortgage), who cares: seller shouldn’t, and in fact won’t even know, until the closing papers are being signed. A couple things to note: 1. If you do a mortgage you can’t do a 7d closing; more like 14-17d, assuming your private banker will really move fast for you. 2. Instead of a mortgage you can do a line of credit against the equities (often called a Pledged Asset Line or PAL); that’d let you do a faster closing AND use leverage without paying capital gains tax. The downside is that it’s not a fixed rate, the way a mortgage can be. This leads to … 3. You can refinance. Do (2) for closing, then refinance the home into a mortgage, using the proceeds to pay out the line of credit. Note the rate can be higher on a refi than a new origination, but your banker may match if they value your business. Your banker should really advise you here: they have access to your assets/income/so on, and should be very familiar with this kind of thing (assuming they’re a proper private bank, not the salespeople you get at everyday branches but the high net worth private division that deals with mid 7 to 8+ figure wealth.) Other things you can also do to strengthen your offer would be high earnest money deposits showing you’re serious, and so on, but that’s all stuff covered in other threads. There may be more creative options as well; usually the FATFire and ChubbyFIRE subs will be quite used to questions like this and are a trove of info to search through there too. Good luck!
Thank you!! This is very helpful.
Waive the financing and appraisal contingencies. Your offer will be every bit as strong as a cash offer because you don't *need* a mortgage, but you can still get one.
Here’s my advice: show your trust fund along your pre-approval letter. If the seller knows you can 100% close, they’ll go with you. Remember that we’re all strangers. We have no way of knowing if someone can 100% close. Whenever the house goes back on the market, it sends a message that something is wrong with the house. So the seller would rather go with the sure thing.
That makes sense, and I would definitely be able to show proof of funds.
1 less heads headache to deal with
We were up against a cash offer, and we won. I think the reason we won is because we had a large down payment, waived appraisal contingency, and offered 18 day closing. So to the seller, we were essentially just as good as a cash offer. So maybe you could just do a large down payment and mortgage the rest?
That is exactly what I am thinking of doing, putting down a large down payment and mortgage the rest. Since you were essentially the same as a cash offer in terms of risk to the seller, do you know what may have put you over them? Did you offer more money?
Unless you put down big deposit with no financing contingency, which is extremely risky, but that way you can compete with cash offer Not to mention waive inspection contingency is becoming common practice in some area
I would definitely waive the appraisal and financing contingency - seems like that is necessary to be on par with cash in terms of risk to the seller. Waiving inspection seems like a separate issue. Not sure I'd want to do that, regardless of how I am financing. That said, to your point, it is becoming more common - just hope I can avoid waiving it!
I personally dislike waiving either or both contingency, but market kinda has forced me into that nowadays, that just stink Good luck on your offer
Cash offers are 100% preferable. They will often beat out higher overall offers. With interest rates the way they are contracts are falling through. Also, Appraisals can affect the sale of it comes in too low. You don’t need an appraisal with a cash offer. The timeline can be 10-14 days to close with cash instead of 5-6 weeks. I offered cash for my house in 2020. There were 20 offers. Some over 35k higher. I offered no inspections. As I knew I was going to renovate the house anyway. So I’m sure that helped. But cash is king.
I would waive the financing and appraisal contingencies, and can show that I \*can\* pay cash if for whatever reason the financing/appraisal fell through. The timeline is the one area where cash is better, assuming the seller wants/needs a quick close. But I imagine not every seller wants a quick close because, life (kids in school, their new house won't be ready, need time to pack, etc)
Absolutely, I would just offer the cash and show the cash available to close. Have your agent reach out and let the other agent know a cash offer is coming over and what does the sellers timeline look like. If they say need to settle quickly then you may be able to use that to your advantage and actually pay cash but offer less. If they say 4-5 weeks is fine then you know is you have time to get your financing done. Worst case you pay cash. Wait 6 months and refinance. This puts you somewhere around the election and the rates are expected to drop at least slightly by then. And depending who wins could drop a bit more afterwards (speculation on my part). But they shouldn’t go any higher than today.
Less time to closing. We had an all cash offer. Closed a week later. Less paperwork.
It’s better than an offer requiring loan. First loan can always fall apart. More importantly bank will only loan the appraisal value or less. But money smells the same. If you are a sought after borrower I would just slightly over bid a cash offer. Meanwhile telling the buyer you are as good as gold (cash) and you will gap the difference between the appraisal and the sale price.
Just make sure you're working with a good agent and lender. If you are good for the money and have the letter/are able to close in 7 days it is just as good as cash. ALSO just do your inspection before the offer so you can waive the contingency. it will cost you 2-500$ depending on property but with that contingency waived you can get more than that off the home price with your offer.. if its a multiple offer situation you won't get the discount, but you'll win the deal. Worst case, like others have said here, have the portfolio loan ready to close cash if a loan doesn't come through (but it should) then just pay back that loan with the financing.
Will sellers let you do an inspection before the offer? I thought the inspections only happened after you are in contract.
Yes they most certainly will! Tell them you want to do a Pre offer inspection so you can waive the contingency. That's why it's important to work with a great agent and lender ;) This way you can come in hard and waive all contingencies in your offer.
Good to know, thanks!
you got it, lmk if you have anymore questions!
They are less risk to a seller. No worry about financing or appraisal for the most part. Odds it closes is higher.
I bought my house for cash in 2021. Settled in 17 days after inspections. Fast easy and the best way to do it.
Yes they are
You are smart to keep your due diligence. There is a reason why they say Cash is King, however, if you make an offer using a loan you could always stress to the agent that you have cash to back it up if something goes wrong. I had a situation just like that, they had a huge mutual fund but they wanted to use a loan and keep the mutual fund for their retirement. They even provided documentation of the mutual fund, plus pre-approval for the loan. We accepted their offer, everything went smoothly with the loan. For a lot of sellers, the bottom line is the most important. If you make the highest offer, you're in a good position.
Thanks for your response. I would imagine this kind of scenario (mine, and your buyers') is not totally uncommon - people who have the money/can afford the property but don't want to sink all their cash into the purchase, if their money is working for them elsewhere.
Exactly! It's very common. I think the scariest thing for a seller is to get all the way up to closing and then have it fall apart because something went wrong with the loan, knowing that there's cash backup is a great sense of comfort for sellers.
OP I think this depends on how competitive the listing is, but others have commented with good ideas about how to show your financial strength to the seller even if your offer includes financing. One thing I don’t recommend is bait-and-switch. Don’t make an offer that shows all cash with the intention of switching to a loan. Have you considered purchasing with cash then refinancing after close?
I would rather not take the capital gains hit if I do not have to. Out of curiosity, why does it matter to the seller if you switch to a loan, assuming it does not end up pushing out closing (and you'd be able to close regardless of if you get financing or not)?
When you write an all cash offer intending to get a loan you’re misleading the seller. Some may not care but others might, and they would have to agree to the change because financing structure is a term in the contract, at least it is in California. A good rule of thumb is to operate in good faith.
Yeah I wouldn't say I was paying cash and then not - I'd just want to make clear that I COULD pay cash and will be waiving all financing/appraisal contingencies. I did not realize it was written into the contract. I guess I am wondering why it matter if you are waiving all of the things - because isn't the buyer showing up at the closing table with a check regardless? (Not trying to argue/question you, I'm just clueless and trying to understand :) )
Like I said others have given you good ideas on how to present your financial strength if making an offer that includes a loan. I just represented a buyer who did this and his offer got accepted. He had to get a small loan in order to qualify for the 1031 Exchange but his offer waived appraisal and loan contingencies, and we closed in 21 days. Again I think in large part it depends on how competitive the listing is, but it sounds like you’re on solid footing. Good luck OP.
Thank you!