Why all cash offers aren’t always the best
Recently the Wall Street Journal published an article speaking to the
downsides of all cash transactions. Especially right now, in the Silicon Valley
Real Estate market with low inventory and many over qualified buyers almost all
offers are all cash or more than 80% cash. Is that always a good thing?
All-cash offers usually trump all others because the seller can be sure that the lender won’t kill the deal by not approving the buyer’s financing or appraisal. Since cash buyers can close quickly, sellers who are ready to move on with another home purchase find that a plus, too. So cash buyers often can buy a house for less money than someone who must get a mortgage. However, there is a downside. Without a bank as a backstop, one can easily make a mistake, and the consequences will be the buyer’s responsibly alone.
Making sense of the story
All-cash offers usually trump all others because the seller can be sure that the lender won’t kill the deal by not approving the buyer’s financing or appraisal. Since cash buyers can close quickly, sellers who are ready to move on with another home purchase find that a plus, too. So cash buyers often can buy a house for less money than someone who must get a mortgage. However, there is a downside. Without a bank as a backstop, one can easily make a mistake, and the consequences will be the buyer’s responsibly alone.
Making sense of the story
- Most buyers find getting a mortgage to be a nail-biting hassle because they have to go through various levels of approvals. They must make a down payment, meet loan-to-value ratios, and pay for independent appraisals, title insurance, and homeowner’s insurance. These precautions are done for the bank’s protection and not the buyer’s. But they have the ancillary effect of protecting buyers who may be swept away by emotion after finding their dream home and making a purchase they shouldn’t.
- Consider appraisals: Lenders always require them, but cash buyers rarely get them. Instead, cash buyers rely solely on comparable sales supplied by their agents, or plucked from websites such as Trulia or Zillow, to give them an idea of what to pay for a house.
- In some cases, cash buyers don’t carefully compare the square footage, number of rooms, quality of construction, and other factors that appraisers do when they rule on a house’s worth. So the possibility that cash buyers could pay more than market value for a home is very real.
- Ironically, there is a possibility that a cash buyer could lose a house in a bidding war because they bid too low, assuming that sellers will automatically choose cash over a mortgage. That is not always the case, especially if the buyers are prequalified and the sellers don’t need a quick closing.
- In rapidly heating markets, some cash buyers may forego inspections to make their offers irresistible. That is one of the worst mistakes any buyer can make, since serious flaws can be hard to detect for untrained eyes.
This blog is courtesy of The Dawn Thomas Team who is an
award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos
650-701-7822. We help nice people with selling and buying homes from Palo Alto
to West San Jose!
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