Selling Your House To a Cash Buyer VS One Using Financing

You have probably heard the old saying “cash is king” and when it comes to selling your house, land or any type of real estate for that matter, there are some clear benefits of selling to a cash buyer vs one that plans on using a bank loan or traditional financing. Let us take a moment to briefly go over some of these advantages.

  1. Speed

    2. Speed is undoubtedly one of, if not the most significant consequence of the cash vs financing decision. When lending a buyer money to complete the purchase of any piece of real estate, the bank usually takes great care to ensure both the buyer and the property meet their lending requirements. In the case of the buyer, this means that the bank wants to ensure that that person or company possesses the funds for the down-payment, cash reserves to cover future mortgage/tax/insurance payments and historical income to establish earning power necessary to afford the property and payments over the course of the loan. The accomplish this, the buyer would need to submit documentation such as paystubs, tax returns, bank statements, credit reports, employment letters and debt schedules to name a few. The bank would then have these documents reviewed by their underwriting team and may have follow up questions once the review is complete. In the case of the property, the bank wants to ensure that it is worth some amount more than what they are lending against it and that it is in good physical condition to maintain this value. This is accomplished through surveys, appraisals and in some cases, inspections. Now, as exhausting as it was reading the previous few sentences, imagine how long it takes for all the back and forth and verification to be completed. The answer; usually a long time. Cash eliminates the need for all of this and as a result the sale can occur much, much faster.

  2. Less Contingencies

    3. When using the bank’s money, you play by their rules. If you are the seller in a real estate transaction where the buyer is using bank financing then you have to play by some of these same rules. Whichever financing contingencies the buyer is subjected to means that you are indirectly subjected to as well. For instance, with some loans, the roof, HVAC and other systems may require repairs if any deficiencies are found. If these repairs aren’t performed, the bank can refuse to finance the purchase. If the home or property doesn’t appraise (more on this in our next point), then the bank may refuse to provide the loan. If the home is located in a flood zone the bank may require flood insurance, otherwise the purchase will not be financed. If the buyer loses their job the week before the scheduled closing; you get the idea. Using cash avoids all these financing required contingencies and as a result, generally means a higher probability of the sale being actually completed.

  3. No Appraisal Needed

    4. Nearly all financing requires some type of appraisal and almost universally, the appraised value of the property must meet a minimum threshold or the bank and often the buyer has the right to walk away from the transaction completely. If, however, the sale is occurring using cash, then as long as the buyer and seller both agree on the price to be paid for the home, then they do not even need an appraisal.