By Anita Newhouse
Soooo, here’s some upsetting news: Making a “cash offer” on a house does not mean I get to walk into the bank with a large briefcase, say “Fill her up!” to the teller, march down to the real estate office and slam that case o’ cash down on the desk in dramatic fashion.
There’s actually no cash involved in a cash offer! It’s probably for the best — dollar bills are riddled with germs.
Even without the dramatics, it’s common knowledge that a cash offer is almost always the best type of offer to make when attempting to buy a home, but before we get into the whys, let’s talk about the whats: Like, what is a cash offer if not a bag full of twenty-dollar bills?
Simply put: A cash offer means the money is guaranteed. Either you have it in your bank account ready to go — oooh! — or you have secured your financing with a bank ahead of time.
How is that better than a non-cash offer? When you make an offer on a house, you’re promising the seller a certain amount of money. Without a cash offer, a plethora of things could go wrong once you attempt to secure financing.
Let’s say I want to buy a house for $500,000. Because I don’t have $500,000 just sitting around, I need to take out a loan through a lender. The lender agrees to give the seller $500,000 and then I make payments to the lender with interest.
Boom! I get my house, the seller gets their money, and the lender makes a tidy little profit for fronting me the cash. That’s a mortgage. You feel smarter already, don’t you?
It doesn’t always go down so smoothly, though. The lender wants to make sure I’m good for the money, but they also want my business. Without much fanfare, they say, “Sure, Anita, you seem nice and have decent credit. We’ll give you that $500,000.” That’s pre-approval.
Pre-approval can be very sneaky. With that “promise” of $500,000, I go find my dream home. The bathroom has a heated toilet seat! I’m in love! So I offer the seller my $500,000 and start picking out paint colors.
Problem is, when I go back to the bank to ask for that $500,000 they “promised” me, it can take weeks for the loan to be approved. Worse yet, the amount initially approved doesn’t always match the amount the bank eventually agrees to.
When I give the bank the rest of my financial information for final approval — a variety of bank statements and tax forms, among other things — the bank pulls back and says, “Whoa, now that we have more information, we’re actually only going to give you $400,000.”
NOT COOL, BANK.
The seller won’t accept $400,000, the deal falls through, and I’m left with a cold toilet seat.
A cash offer eliminates all that waiting and risk. That’s why cash offers tend to win against competing offers.
What’s more, cash offers are so preferred by sellers, a seller will sometimes take a lower cash offer over a higher non-cash offer to avoid the waiting, risk, and headache.
Just as buying a home can be overwhelming, so can selling a home, and sellers want to make the process as smooth and risk-free as possible, too. Cash offers do just that.
The power of cash is real. In 2020, 53% of Flyhomes buyers who won bidding wars with cash offers won against higher offers.
Cool, right? You get that heated toilet seat!
If you want to read up more about financing a new home, check out my intro to pre-underwriting. Pre-underwriting is the first step to knowing exactly how much money you have to work with when searching for the right home. It’s not sneaky like traditional pre-approval.
Sure, you don’t get to carry around a briefcase filled with money, but it’s pretty much the next best thing.
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