Cash offers: what do you need to know if buying “all cash”?
If you are purchasing your Silicon Valley home “all cash”, you will be in a stronger negotiating position. Most of the time, you will get a slight discount on the price and the escrow period should be smoother as there will be fewer hurdles with no financing contingency. Sellers always welcome cash offers, especially now.
What do you need to know if writing an all-cash real estate offer?
First, make sure you really do have your funds available or “liquid”. Sometimes buyers think that because they have stock worth a certain amount of money, funds in an overseas bank account or equity in another property they will have access to that cash almost immediately. It often doesn’t work that way.
Large sums of money coming from out of the United States may have to sit in a bank account for some time, possibly 30 days. Domestic wire transfers usually have little or no hold time. Is your money overseas? You may want to consider moving it well in advance of the close of escrow. Speak with your escrow officer and Realtor about the details.
Selling stocks, mutual funds or bonds? The listing agent may be satisfied if not 100% is liquidated up front but will want to see that a substantial amount is already in cash. Remember, though, that selling off those assets is NOT a contingency of the contract. If the stock market falls through the floor tomorrow and you’re already in contract and with no financing contingency, your initial deposit could be at risk should you not complete the sale – that would be considered a default. (Please read your real estate contract carefully!)
Some home buyers write “all cash” offers when in fact they are taking money out of another residence or real estate. In truth, it may look like a slam dunk to get the money but if there are any complications with the refinancing of the other property, those home buyers could be at risk. These sales are contingent upon financing – just not the home in escrow! There are many ways in which these transactions can get mucked up, so be careful if skipping a loan contingency when in fact a loan is needed.
Second, if you make an all-cash offer, you must provide proof of funds along with your purchase agreement. It would be foolish for the listing agent and seller to not require this cash documentation - it is an important element or term of your contract. Your agent can white out or black out your address, account number for the sake of privacy but leave showing your bank balance and name.
Third, one of the pluses of an all cash offer is that it can close faster. If all the conditions are right, this could be just a few days or a couple of weeks. My fastest ever was 5 days; there were already loads of inspections (2 of everything, as I recall) and the buyer was in an enormous hurry due to a tax deadline with a 1031 exchange. An offer without financing could close in 2-3 weeks even if the buyer wanted new inspections.
Why would a seller want this? Sometimes the seller needs cash in the bank to purchase the next home. For example, you could purchase his or her house in 3 weeks and that seller could complete a sale on another house maybe a week later. (The seller would often deeply appreciate a brief “rent back” for that week or so to avoid 2 moves in a short window of time.)
How much of a discount could you expect with a cash transaction vs one with a loan?
Probably not as much as you might think. (About a year ago I had a listing that received multiple offers. The lowest – a true low-ball offer – came in about 20% lower than list price. The highest, of course, was well over list! The low-ball buyer said “but my offer is all cash!” and could not believe that he didn’t get the house. Most sellers will wait 30 days for that much more money. Wouldn’t you?)
In my experience, the cash discount varies but is usually in the 2-4% range. Most sellers (but not all!) will take a little lower of a sales price in order to have the higher probability of success with the closing due to no loan issues. If there are multiple offers, you may get no discount but you will be the winning bid. All cash is always a help!