Cash Offer on a House: Should You Consider It in 2024?

✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home sellers.

In February 2024, 34.5% of homes were purchased with cash. The number of cash offers on a house increased significantly by 15.59% compared to the previous year. This is due to the increase in mortgage rates.

Higher mortgage rates means higher monthly payments, which home buyers can avoid with an all-cash home purchase. In fact, the current mortgage rates for today are at 7.3% which further motivated an all-cash buyers’ market.

What Does Cash Offer on a House Mean?

It means you offer cash upfront to a seller to purchase the house. You do not choose to take a mortgage or need financing to buy a home. If you have enough funds, you can choose this option to avoid high mortgage rates.

Even if you buy a house paying all cash, you still need to pay certain costs. These include transfer taxes, HOA fees, escrow fees, homeowners insurance, etc.

Who Makes Cash Offers?

Individuals or families with sufficient liquid assets prefer buying a house for cash. Direct buyers and iBuyers, who are generally house flippers or investors, also tend to make cash offers.

Additionally, some cash buyers are investors who want to build a portfolio of rental properties. Older, repeat homebuyers are also likely to make cash offers for homes. This is because they have built substantial equity in their existing properties.

Cash Offer vs. Mortgage

Let’s see how the house-buying process differs between cash payments and mortgages:

Sr. No.	Parameter	Cash Offer	Mortgage
1	Payment	The full purchase price is paid in cash upfront.	A loan is taken to cover the property’s cost and is repaid over time with interest.
2	Lender Approval	Is not required.	Is required. There is a rigorous application and approval process.
3	Closing Time	Is faster since there’s no need to wait for loan approval and financing.	Is longer as it depends on loan approval and funding timeline.
4	Down Payment	Is not required.	Is usually required. A certain percentage of the purchase price is paid.

Pros and Cons of a Cash Offer on a House

These are the benefits and drawbacks of cash offers for houses:

✅ Pros

For Sellers:

• Faster Closing Process: Buyers making an all cash offer would not need financing. This saves time that would have been taken by the mortgage approval process. Therefore, sellers can close the process and receive the funds sooner.

• Fewer Deal Cancellations: An all cash offer means the buyer has enough funds to purchase the house upfront. This eliminates their need for a loan, along with financial issues such loan denial, underwriting delays, etc. This translates to fewer deal cancellations.

• Streamlined Process: As there is no lender involved, there is no mandate for a home appraisal. Thus, sellers don’t have to worry about renegotiations on the agreed price. This helps close the deal faster and smoother.

• Lower Closing Costs: Without the need for a lender, the seller is exempted from additional costs like mortgage insurance, appraisal fees, etc. This allows them to retain more of the sale profits.

For Buyers:

• Lower Purchase Price: Sellers prefer cash deals as they fasten the sales process. Therefore, they may give discounts to attract buyers. This allows buyers to negotiate a lower purchase price.
• No Monthly Payments: Buyers purchasing homes in all-cash do not have to pay the monthly interest associated with a mortgage. Because of this, they can save a significant amount of money over time.
• Reduced Closing Costs: Buyers do not have to pay lender-associated closing costs in an all-cash purchase. This saves buyers from spending money on application review and loan origination costs.

❌ Cons

For Sellers

• Lower Offer Price: Cash deals are usually less complicated and help the seller retain bigger profits. Because of this advantage, cash buyers might ask for a lower price from the seller.
• Limited Buyer Pool: Due to prevailing higher home prices, a large number of people are unable to buy a house in all-cash. Therefore, they usually seek financing to be able to own a house. This limits the number of cash buyers on the market.

For Buyers

• Less Liquidity: All-cash offers on a house may take up a large portion of your liquid assets. Due to this, buyers may be left with less cash available in hand for other expenses such as medical bills, education costs, travel, etc.
• Market Fluctuations: Investment in the house may fluctuate when its value increases or decreases. Therefore, buying a house in cash may not always be profitable.
• Lower Financial Flexibility: Spending a large portion of your savings in cash can impact future financial planning. This would make it difficult to achieve goals such as starting a business or saving for retirement.

What Should Sellers Do Before Accepting a Cash Offer?

While selling the house for cash, ensure these 3 checks:

1. Value the Offer: Subtract closing costs, taxes, or any outstanding mortgage balance from the offered price. This way, you can determine the net profit you’ll make from a cash offer.
2. Verify the Funds: Request proof of funds to assess the financial strength of the buyer. This proof can be a salary slip or a bank statement of a minimum of 2 years.
3. Compare Offers: Evaluate the terms and conditions of each offer. Check the proposed purchase price, contingencies, and closing timeline of each offer.

What Should Buyers Do Before Making a Cash Offer?

It’s essential for buyers to prepare thoroughly before making an all cash offer. Here’s what you can do:

1. Prepare Financially: Create a budget that includes the purchase price, closing expenses, property taxes, and possible repairs. Ensure you have enough cash reserves, liquid assets, and financing options.
2. Arrange a Home Inspection: Hidden issues such as repairs or renovations may impact the property’s value later and cost you a lot. Therefore, hire a professional home inspector to assess the property’s condition thoroughly.
3. Make a Competitive Offer: Research similar properties and current market trends. Evaluate the prices based on house type, location, and size to offer a fair and competitive price.
4. Keep Documents Ready: Have all necessary documents, such as pre-approval letters, proof of funds, and proof of identification. This will make your offer more appealing to sellers as it will expedite the sale.

How Can You Attract Maximum Cash Offers?

To attract maximum cash offers for your home, it needs to be visible to a large number of buyers. So, list it on the MLS. This will syndicate your property to popular real estate websites like Zillow, Trulia, and Redfin, significantly increasing its visibility.

Moreover, homes on the MLS tend to sell faster and for 17% more. With a high-tech Flat Fee MLS company like Houzeo, your home is listed within 24-48 hours.

Eager to Know More?

We’ve got you covered. Check out the following video to understand how Houzeo works and why it is one of the best MLS listing websites in the U.S.

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Frequently Asked Questions

• Cash Offer on a House