“Cash is king,” as they say, but here is a more nuanced look at cash offers.
I’ve been in the real estate business for more than 26 years, and I’ve never seen so many cash buyers in our marketplace—it’s truly dumbfounding! So, for all you potential homebuyers out there, I figured it was high time to review the pros and cons of submitting a cash offer.
Here are the four major pros:
- Quick close. By paying cash, you can close a real estate transaction fairly quickly. Now, speed may not be advantageous to a seller who lives in the home and needs time to find their next house, but simply having the ability to close quickly is always a positive.
- No appraisals. Sellers love not having to worry about issues arising from an appraisal. If a buyer originates a mortgage, the bank will only lend them the amount for which the property appraises, and negotiating the gap between the offer price and appraised value can be tricky.
- Saving money on closing costs. Thousands upon thousands of dollars will stay in your pocket. While cash is king (especially in multiple-offer situations), we are seeing instances of cash buyers bidding beyond list price to secure a home in this low-inventory market—yes, our market is so competitive that cash buyers need to be on their toes! Now, that isn’t the case for every multiple-offer situation, but it is something to take into consideration when you’re trying to find the best way to structure your cash offer.
- Foreclosure fears are eliminated. Not having to originate a mortgage means you’ll never be foreclosed on due to default. Of course, you do still need to pay your property taxes. “If you buy with cash, you may be missing out on a sizable tax deduction.”
Here are the three main cons:
- Dumping all your money into one asset. Consult with your accountant and attorneys before buying a house via cash offer, as it may not be the most prudent use of your cash on hand. Instead, you may want to invest that cash differently to generate income.
- Liquidity. If plans change or life takes a drastic turn, you may not be able to get money out of your property as quickly as you’d like.
- Tax deduction ineligibility. If you buy with cash, you may be missing out on a sizable tax deduction. When you originate a mortgage, you get to write off the mortgage interest.
As always, if you have additional questions on this or anything other real estate topic, please reach out to me via phone or email and I’d be more than happy to chat with you.