The more competitive the housing market, the more buyers will do to differentiate themselves from the competition. Making a cash offer is one such way for a buyer to differentiate. In a seller’s market, offers often receive multiple offers, often above their original asking price. This will typically lead to bidding wars between buyers, and cash offers will often come in. Keep the following information in mind if you are considering making a cash offer on a home.

What is an all cash offer?

When a buyer makes an all-cash offer, it means that he has the money available to buy the house in a liquid account and does not need to get a mortgage. Once the buyer has shown that he has enough cash to make the purchase, he will make a serious down payment. The remaining amount they owe is usually transferred at a later date.

While financed offers are associated with an approval process with a lender, offers are not cash because the buyer has already proven that he has the necessary amount on hand to purchase the property. This can lead to a less risky and more streamlined sales process, which sellers may see as beneficial.

How do I make an all-cash offer on a house?

First, there’s the question of how to organize the money you use to make your cash offer. While not required, pooling your funds in one account can help simplify the listing process. This way, when it comes time to show the seller a bank statement showing you have the funds needed for the purchase, you don’t have to spend extra time tracking down funds from multiple accounts.

Once you have found the house you want to buy, work closely with your agent to prepare a quote. Knowing that you are willing to make an all-cash offer bodes well for negotiations. Your agent can use the guaranteed money and fast closing times as leverage to lower the price of the offer. You can also choose your contingencies by hand, which can make the deal even more pleasant for the seller. This can come in handy in a highly competitive market, where making a cash offer may not be enough to win. Once the offer has been agreed and signed by both parties, it is ready for escrow and closing. All-cash offers often lead to quick sales with short closing times. It can therefore only be a matter of days before you receive the deed of your new home.

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What are the advantages and disadvantages of cash offers?

Advantages: All-cash offers essentially remove the middleman from the buying process, allowing you to buy a home without going through a lender. You also save on the closing costs that would have been incurred when taking out a loan. The closing process will be shorter, which can be useful for both buyers and sellers who want to move quickly. In addition, a cash offer can be the antidote to meeting the challenges of a highly competitive market by: increase your purchasing power and influence your agent when approaching negotiations.

cons: The biggest drawback of making a cash offer is self-explanatory: you’ll have less cash available once the purchase is complete. This means that you will be cutting your reserves for the myriad costs associated with owning a home. Before proceeding with a cash offer, make sure you have covered closing costs, taxes, repairs, and any fees renovation projects you have in mind.

Wondering how to stay competitive without an all-cash offer? The first step is to get pre-approved:

The importance of pre-approval.