Why Are Cash Offers Better For Sellers?

Whether you’re a buyer or seller, you’ve felt the impact of continued low inventory, rising interest rates, and a reduction in existing home sales. Despite the rumble in the market, buyers haven’t stopped pursuing the dream of home ownership. What is changing is how people pay for properties.

In April 2022, the cash buyer—not a new player in the game—drove 25% of home sales.

If you’re selling your home in the current market, you’ve likely heard the buzz about cash offers. In this article, we answer a seller’s pressing question: Why are cash offers better?

Take a minute and find out why you should consider accepting an offer from a cash buyer vs. one that needs financing. Our cash offer tips will help you make an informed decision.

What Is a Cash Offer?

If you’ve never heard it, there is such a thing as mattress money. It’s money people hold at home rather than putting it in the bank. Around 17% of Americans stash their cash at home.

People often make jokes about mattress money, but cash buyers don’t arrive at closing with a backpack full of money in real estate. While it’s technically not illegal to pay for a house with paper money, most sellers prefer to receive the sale proceeds through a bank transaction.

If a buyer makes a cash offer, they aren’t financing their home purchase with a mortgage. Cash buyers pay the total sale amount with a cashier’s check or a wire transfer from their bank.

Of course, it’s more fun to imagine someone digging up a coffee can full of cash from the backyard and handing it to the seller to count.

Who Pays Cash for a House?

So, what kind of buyer has the liquid assets to purchase a property for cash?

Someone who recently sold their home may have enough cash to cover the purchase. The person who spent years saving to buy a home is another example of a buyer who can offer cash. These are traditional buyers.

Direct buyers also buy homes for cash.

These are individuals or house-buying companies that purchase homes without financing. Real estate is an excellent option for corporate investors looking to either expand their portfolios, flip houses, or get into the rental market.

In the current seller’s market, cash buyers win bids for various reasons.

Generally, cash transactions mean a quicker closing, which most sellers appreciate. The key to accepting a cash offer is to make sure the offer is valid and comes from a reliable source.

Why Is a Cash Offer On a House Different?

While there are many similarities between cash and conventional offers, when working with a cash buyer, there are also a few differences.

As you’ll see later in the article, many cash buyers don’t hire real estate agents. This eliminates commissions and can reduce the amount of paperwork.

If you accept a cash offer, you’ll still pay closing costs, but you will not pay the buyer’s costs to close. Sellers usually pay for recording and transfer tax fees.

You will pay any remaining mortgage, back property taxes, liens, or judgments against the property.

Benefits of Cash Offers for Sellers

Sellers like cash offers for several reasons. Here are two benefits for sellers when they accept a cash offer vs. a traditional sale where the buyer needs approval for a mortgage:

Quicker Closing

The time it takes to close on a traditional home sale averages 50 days. In some cases, closing might take longer. Cash sales can usually close in 4-10 business days.

Less Risk

Accepting a cash offer means less risk of the sale not going through. Lender delays and denials of financing can put mortgage-contingent offers at risk. Sellers minimize those risks by working with a buyer that can offer to pay cash.

While quick closings and less risk are excellent incentives for sellers to accept cash offers, there are even more benefits. We’ll talk about them next.

More Reasons to Consider a Cash Offer

Selling a home to a cash buyer provides additional benefits beyond speed and risk management. In the next section, we’ll talk more about commissions, but cash sales usually don’t require paying real estate agent commissions. That’s a plus for most sellers.

Other reasons to consider cash offers include:

No appraisal
No marketing
No showings
No negotiating
No piles of paperwork

Sellers can say “no” to several parts of the real estate transaction process that most people consider tedious and unpleasant.

Why Is a Cash Offer Better for a House in Disrepair?

When a house isn’t in the best condition, it’s often more difficult to sell. Maybe you’re experiencing financial hardship and haven’t had the funds to keep up with maintenance. Or, perhaps you inherited home in disrepair.

Whatever the situation is with your house, a cash offer can help you sell without making repairs.

Most cash buyers, particularly direct buyers, don’t expect to buy a home in perfect condition. They calculate the cost of major repairs when they write the offer.

It’s also possible that a cash buyer will not request an inspection—at least not one that results in a laundry list of repairs they expect the seller to take care of before closing.

Many people choose to sell a home as-is because it’s a welcome relief — both financially and emotionally — from worrying about costly repairs.

No Real Estate Agent Commissions

Individual cash buyers sometimes hire a real estate agent. Payment of the buyer’s agent commission is the responsibility of the buyer.

Sellers looking for cash offers don’t usually hire real estate agents, so they don’t have a commission to pay. If the seller chooses to help the buyer with their costs, they can offer to pay the commission or a portion of it, but there’s no obligation to do so.

Direct buyers don’t hire real estate agents, so there will never be a question about which party covers commissions.

While real estate agents provide a valuable service to buyers and sellers, their commission can significantly cut into the seller’s proceeds from the sale. When you consider that most real estate agents charge up to 6% of the sales price, eliminating the fee by accepting an offer from a cash buyer makes sense.

Cash Offers Benefit Buyers Too

Sellers aren’t the only ones that benefit from cash home sales. Cash transactions provide several benefits for buyers as well, including:

No mortgage payment
No mortgage insurance
No mortgage interest

Paying cash also usually means the seller may accept a lower offer. Quick closing and less hassle make a lower price worth it to some sellers.

Buying a home for cash can save the buyer money in both the short and long term.

Cash Offer vs. Pre-Approval

Another question most sellers ask is why are cash offers on houses better than offers from a buyer who needs financing?

Non-cash buyers go through three steps (or levels) when applying for a mortgage. The steps include:

Pre-Qualification

The process takes around 15 minutes and gives the borrower a rough idea of how much house they can afford. Pre-qualification helps the buyer shop smarter for a home. It also avoids wasting time looking at properties they can’t afford.

Pre-Approval

Here, the lender pulls the buyer’s credit report. They also collect information about the buyer’s assets and income. If the buyer’s financial situation looks good to the lender, they will issue a pre-approval letter.

Full Loan Approval

A buyer with full loan approval is a serious buyer. They have a loan locked and ready to close once a seller accepts their offer. Full approval can look as good as having cash in hand.

While this may sound appealing to a seller, it doesn’t remove some obstacles. In most cases, the lender will still require an appraisal. The buyer will likely want an inspection.

If you’re still wondering, “Why is a cash offer better on a house?” don’t miss reading the next section.

Cash Offers Are More Solid

When a seller accepts a cash offer, they remove most of the risk of the offer falling through. When working with traditional buyers, the offer can fall through for various reasons. Most conventional offers include one or more contingencies, including:

Property passes inspection
Property appraises at an acceptable value
The buyer sells their existing home
Buyer approved for financing

Contingencies aren’t the only reason real estate transactions don’t close.

Sometimes buyers get cold feet. As they go through the buying process and realize the enormous responsibility they’re taking on, some buyers walk away. The reality of mortgage payments, property taxes, and the cost of maintaining a home is more than some buyers can take.

Cash offers can also fall through.

An individual investor may decide they want to invest in a different property. Or, they might discover something unfavorable in the home inspection report that they hadn’t foreseen.

Cash offers rarely fall through when sellers work with a direct buyer.

Before extending an offer, a direct buyer does plenty of due diligence to ensure they’re making a good investment. You won’t receive a wishy-washy offer from a direct buyer.

Are There Any Disadvantages to Cash Offers?

Sellers accepting all-cash offers enjoy multiple advantages, as discussed throughout this article. As with anything in business, there are always drawbacks to cash offers. The few disadvantages may or may not pose a problem for you, but it’s wise to be aware of them beforehand.

Sellers looking for the top dollar may need to use a different approach to home selling. Here’s why:

Cash offers are typically lower than the asking price. The quick close and no contingencies can make up for the lower offer. Whether or not a cash offer is attractive depends on the seller’s situation.

The other possible disadvantage is verifying that the buyer has the cash. It’s only a drawback if the seller doesn’t request proof of funds. If the seller works with a reputable direct buyer—an established company that buys homes for cash—this will not be an issue.

How Can You Be Sure a Cash Offer Is Legitimate?

One of the best (and one of the worst) times to sell a home for cash is when you’re in a situation where time is critical.

Why are all-cash offers better when you need to make decisions quickly? Most sellers say it’s the speed and convenience associated with a cash transaction.

While it might sound too good to be true, if you have a qualified buyer, time just might be on your side.

You can easily determine the validity of an offer by requesting a proof of funds letter. It’s a letter from the buyer’s bank, showing that they have the resources to cover the purchase of your home.

Sellers Who Get the Most from a Cash Offer

While anyone selling a house can benefit from accepting a cash offer, some sellers gain more than others. It depends on the motivation to sell.

Here are the most common motivators for accepting a cash offer:

Sell a home as-is—no need to worry about repairs
Easy, hassle-free selling process
Eliminate property taxes, mortgage payments, and insurance
Need to relocate fast
Avoid foreclosure
Divorce
Home has been on the market for too long
For sale by owner isn’t working

While these are the primary reasons why cash offers work, many others are not listed in this article. Answering the question of “why is a cash offer on a home better?” requires considering the specific circumstances of each seller.

Whatever the motivation is, at the end of the home sale, sellers will have less stress and can move on to the next home or business venture. In most cases, they’ll also have cash in their bank account.