Pros and Cons of an All Cash Offer for Home Sellers and Buyers

✏️ 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.

Even in a cooling market, cash offers are more common than you think. Almost one-third of US homes sold in December 2022 were all-cash transactions.

With rising mortgage rates and expensive financing, cash offers will be even more attractive for home sellers and buyers alike well into 2023. In this post, we will look at the pros and cons of a cash offer on a house for buyers and sellers.

What is a Cash Offer on a House?

A cash offer in real estate means the buyer would purchase a house without any financing or mortgage loan. The buyer would buy the property either with a check or via a wire transfer. This means the buyer has the entire sale amount in their bank account.

👉 Get Top Dollar Cash Offers On Your Terms: Major cash buyers, including Opendoor and Homevestors, have submitted offers on Houzeo properties. An MLS listing via Houzeo.com gives you maximum exposure. List NOW!

How Common are Cash Offers on Houses?

Cash offers on houses are more common than you think.

In the second quarter of 2022, 35.4% of single-family home sales were all-cash purchases. Several metropolitan cities have more cash purchases than traditional home sales. These include Naples, Youngstown, Salisbury, Atlanta, and Utica.

Cash offers on houses are more common under the following circumstances:

• A real estate investor is interested in your property
• Home seller approaches a cash home buyer or an iBuyer
• The seller wants to sell their house as is to skip expensive repairs
• Your property is located in a hot seller’s market and the buyer wants to stand out

With interest rates doubling over the past year, cash home buyers will have an edge over traditional buyers in the near future.

Pros and Cons of an All Cash Offer: For the Seller

Here are some of the pros and cons of selling a house for cash:

Benefits of Accepting a Cash Offer on a House

Pro #1: The Closing is Simpler and Quick

Buyers opting for mortgage financing close within 30-60 days after the house goes under contract. The closing timeline gets affected by the type of loan opted for by the buyer. First-time home buyer loans such as an FHA loan will further push your closing timeline due to stricter approval criteria.

With an expedited closing process offered by most cash buyers, you can close in as few as 7 days. With no mortgage financing involved, the paperwork reduces significantly. You only have to sign the deed, transfer the title, receive the check, and hand over the keys.

» Companies that Buy Houses for Cash: Top cash buyers that offer a fast closing.

Pro #2: You Will Skip Financing Contingency

The cash buyers have all the needed funds in their bank accounts. They directly give sellers a check or make a wire transfer. Thus, there is no financing contingency involved in the transaction.

Pro #3: You will most likely By-pass Appraisal and Inspection Contingencies

Usually, mortgage lenders require buyers to appraise the property. With no lender involved in an all-cash sale, the buyer may skip appraisal. You are also very likely to bypass home inspection. However, an investor looking for a good ROI might go for a home appraisal and inspection.

Pro #4: Lower Risk of a Deal Falling Through

16% of purchase agreements fell through in July 2022. A cash-backed offer assures sellers that the buyer won’t back out if they fail to secure a mortgage.

Pro #5: You get Instant Cash in a Difficult Situation

Cash offers are the best if you are going through a tough time like divorce or job layoff. You get instant cash by selling your house as is to institutional cash buyers of iBuyers.

Drawbacks of Accepting a Cash Offer on a House

Con #1: You Might Have to Settle for Less

Traditional cash home-buying companies make lowball offers. They can go as low as 30% of the market value. As per a study conducted by researchers in the Rady School of Management at the University of California, home sellers accept cash offers 12% lower than financed offers.

» How to Find Fair Market Value of Home: Calculate your home’s market value

Con #2: You Might Pay High Hidden Costs

Cash home-buying companies lump in several hidden costs which they generally term as “service fees”. This may be as high as 13% of the home sale price.

Pros and Cons of an All Cash Offer: For the Buyer

Here are some of the benefits of an all-cash offer along with risks for cash home buyers:

Benefits of Making a Cash Offer on a Home

Pro #1: You will Save Hundreds of Thousands in Mortgage Payments

To finance a $300,000 home today (using a 30-year, fixed-rate mortgage at Freddie Mac’s current rate of 7.05%), you’d spend a whopping $422,157 in interest over the next 30 years.

Mortgage rates in the US are projected to rise even more in 2023. Making a cash offer on a home will save you a fortune that you can invest somewhere else.

Pro #2: Home Sellers Will Find Your Offer More Appealing

Lower risk of fall through, simpler & quicker closing, and lesser contingencies, make cash offers attractive for home sellers.

Pro #3: You will cut down on the Closing Costs

Since you skip financing you bypass all the lender-associated closing costs. This includes application reviewing costs, loan origination costs, and even home appraisal costs in some cases. As per a study, over the past 40 years, all-cash home buyers on average paid 11% less than mortgage home buyers.

Drawbacks of Making a Cash Offer on a Home

Con #1: A Significant Liquidity is Tied Up

A big chunk of your investment gets trapped in a non-liquid asset. If an emergency arises, you will have limited liquid funds in hand. Assess such emergencies before making a cash offer on a house.

Con #2: You Will Skip Some Important Steps

When getting a mortgage, the lender requires the buyer to get the property appraised. By making a cash offer you might skip the home appraisal, making yourself susceptible to overpaying.

Con #3: You Will Lose Out on the Mortgage-related Tax Benefits

Mortgage payers enjoy tax incentives in the form of mortgage interest deductions, property tax deductions, mortgage discount points, and more. By making a cash offer on a house you would miss out on such tax-related benefits.

Bottom Line

There are pros and cons of a cash offer on a house for both ht parties involved in the transaction.

In a hot seller’s market, an all-cash offer makes cash home buyers stand out from the competition. Whereas, in a cool real estate market, buyers save hundreds of thousands of dollars in mortgage payments. But, buyers miss out on mortgage-related tax benefits and skip important steps in the closing.

For home sellers, the advantages of a cash offer on a house outweigh the drawbacks. Access to hard cash, fewer contingencies, fast closing, and lesser fall-through risk are some of the benefits of a cash offer on a house.

Get on the MLS

To attract maximum cash offers you should list on the MLS. Your house gets marketed to all types of buyers nationwide, including cash buyers. Homes listed on the MLS sell faster and for 17% more.

Maximize Your Cash Offers with Houzeo

Houzeo is the best option to attract maximum cash offers. Houzeo lists your house on the MLS for a small flat fee instead of a 3% real estate agent commission. An MLS listing markets your house to nationwide cash home buyers.

With Houzeo you manage your cash home sale without any real estate broker assistance. Houzeo also offers a free listing on its website. Major cash home buyers like Opendoor and HomeVestors have made cash offers for homes listed on Houzeo.com.

More About Houzeo

Eager to Know How Houzeo Works?

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

» NEED MORE CLARITY? Read these exclusive Houzeo reviews and learn why the platform is the best in America’s competitive housing market.

Frequently Asked Questions (FAQs)

• Cash Offer on a House