Why Does a Seller Care If I’m Using Cash or a Loan to Buy Their House?

When I first sit down with people to help them understand the home-buying process, prepping them for the journey ahead, one of the topics I dive into is why a seller cares where the funds to buy the home are coming from. In the end they get paid the same, regardless of where it comes from, right? 

A seller does care how you are purchasing their home, whether it be with cash, or by using a loan. It all comes down to risk assessment for them. The seller is weighing how likely the deal will survive. From the point of accepting your offer, making it through the inspection negotiations, getting passed the appraisal, to arriving to closing day, their payday. These are some of the factors they consider while reviewing your offer, especially if they are comparing your offer to other offers that around the same offer amount:

1. Why do sellers prefer cash to loans?
   1. Cash offers don’t require an appraisal. Although including an addendum that makes the deal contingent upon a successful appraisal is still an option with cash offers.  No appraisal means there is no risk of it appraising low (bank saying it is worth less than you’re offering), resulting in the bank not loaning the original amount to the buyers, which was offered to the sellers. In this event, the deal dies, the buyer brings more cash to close, or the buyer backs out and gets their earnest money refunded to them. A low appraisal is seen as a risk to the sellers, so not having to worry about that is generally appealing. 
   2. No appraisal means, no work orders. Work orders are fixes required by the appraiser prior-to approving the appraised amount. It is possible to have work orders required, in-addition-to an appraisal coming in low. For example, you might offer 350k for a house, have it appraise for 325k, providing the seller install hand rails along the stairs out-front, and touch up paint on the exterior in the specified areas where it is chipping. Those are small work orders, but sometimes they require much larger, more expensive fixes, such as installing a new roof. Not having to stress about this process as a seller gives them one less thing to worry about and looks great in a competitive situation.
   3. Speedy close! Typically, you can close on a house with a cash offer in 1-2 weeks, depending on where the funds are located. This timeframe is half of the time it takes to close on a house with a buyer using a loan. Lenders typically ask for 30-45 days to close on a home using traditional financing. This varies depending on where you are at in the loan process and what type of financing you are using! Depending on the sellers situation, perhaps they don’t need a quick close, giving cash offers a little less of a competitive edge. Your agent should be reaching out to the listing agent (sellers representative) before writing/submitting your offer to make sure they are up to speed on what the sellers unique situation is, and what they are looking for. 
   4. Less picky on inspection? Many of us working in Real Estate would argue this is not always the case, but if someone has the cash to buy a home outright, there is an idea that perhaps they will be less picky during the inspection negotiations. One of the arguments agents can make on behalf of their home buyers using traditional loans is, they don’t have the money to make the repairs. A seller might make the assumption that a person using cash has the funds to not be as picky about some of the smaller fixes needed that may come up on inspection.

Many people in the industry tout the phrase, cash is king! However, depending on what the seller is looking for, there are other ways you can make your offer more competitive, if you are using a loan. Do the sellers want a rent-back? Are they waiting for a job transfer and prefer a long close over a fast one?

Don’t despair if you get beat out by someone paying with cash. There are always more houses coming onto the market!