You might think that cash offers only change the funding of a real estate deal, but that is not true. Cash real estate transactions have multiple differences vs. a regular house sale funded via a mortgage. In this article we list these differences out and explain each.
Cash offers introduction
First off, it’s helpful to explain what a cash offer is.
In its simplest form, a cash offer is any offer to buy real estate using cash or cash equivalents. This typically means any source of funding that is not a traditional mortgage.
How does the homebuying process changes with a cash offer?
A cash transaction is different from a traditional real estate transaction for several reasons. The differences include speed, the likelihood of the deal closing, etc. We discuss each of the main differences below.
Reduced speed and increased simplicity
Cash offers eliminate the hassles and drawn out process of a transaction funded by a traditional mortgage.
- There is no mortgage loan involved. This means no lengthy loan application or loan approval process. The lack of this ~30+ day process reduces the time it takes to close the transaction.
- There is typically no appraisal contingency, which are required by traditional lenders for loan approval. This difference speeds up the closing process and reduces one more hurdle to close.
- As-is sale: because there is no lender involved the house is typically purchased as-is in a cash sale. This allows sellers to sell their real estate even if the condition of the house wouldn’t be suitable for a traditional loan. In other words, you can sell a house in disrepair that wouldn’t qualify for a traditional mortgage loan.
Increased likelihood of the transaction closing
Cash offers greatly increase the likelihood that a transaction will close.
- No mortgage contingency: the lack of a mortgage application and approval also means there will be no mortgage contingency. This is one less “out” for the buyer to use, which increases the likelihood of the deal closing.
- As stated above, cash deals typically don’t have appraisal contingencies. Eliminating this contingency eliminates another “out” for the buyer.
- The house is being sold as-is. In turn, the seller doesn’t have to worry about the property not qualifying for a traditional mortgage loan based on it’s condition. This is important because many lenders will not lend on a property if the condition is not up to a certain level. This makes it impossible to close a deal if the lender refuses to finance the house. Eliminating this issue adds another level of assurance that the deal will close.
There are several differences when real estate is purchased for cash vs. a mortgage. In general, the process is typically shorter and simpler. It also has a higher chance of closing due to the (often times) elimination of several contingencies, such as the mortgage contingency and appraisal contingency.