Why Do Real Estate Investors Make Cash Offers?

What is a cash offer on a house?

A cash offer is an all-cash bid which means the homebuyer wants to purchase a property without a mortgage loan or other financing. Such offers will be attractive to the sellers, they mean no buyer financing will fall through risk, a faster closing time. According to a 2021 report by the National Association of Realtors, the majority of real estate agents saw prices increase in their area,  29% of buyers purchased their homes above the asking price.

At mid of 2021, cash sales made up 23% of home sales, this is not only due to direct buyers and iBuyers, but traditional buyers also helped. The increased popularity of cash offers in real estate is because they benefit both the buyer and seller. The sales process can be quicker and less stressful than a cash transaction. Buyers can save money in the long run while sellers also don’t find as high risk when a sale falls through.

Who makes cash offers in real estate?

A traditional buyer with the liquid assets to pay cash. Either individuals or families who are purchasing a house for their living space. A traditional buyer will have ready cash for purchase if they sold their last home and have the cash from the sale to avoid a mortgage on their new home.

Many direct buyers and iBuyers also will purchase houses with cash. These companies will aim to purchase a home without financing and close quickly so they can flip the property and earn a profit.

Why are cash offers great for buyers?

Cash home sales are great for both homebuyers and sellers. 

Lower purchase price.

Paying the amount for a house can save you money on the listing price. Sellers will mostly accept a lower cash offer for a fast and hassle-free sale as opposed to dealing with the long traditional sale process.

No mortgage interest. 

If you pay cash for a home then you don’t have to pay the monthly mortgage payment. Mortgage rates will rise in 2022. Paying cash for a home will save your money in the long run since you don’t have to pay the high-interest rates.

Tax implications. 

The buyer may not be eligible for as many tax write-offs because they will be in a mortgaged home purchase, the seller is actually the one taxed on a cash purchase if they made a net gain on the sale.

Before a cash purchase, talk to your real estate agent to make sure whether it’s the right offer for the home to fit your needs!

Pros of making a cash offer:

  • Your credit score doesn’t factor into the process
  • They can offer a faster closing period
  • They give sellers more confidence
  • You can save money over time
  • You don’t need a home appraisal
  • Reduced Paperwork and documentation

Cons of making a cash offer:

  • Can’t use mortgage-related tax deductions
  • Takes a significant amount of money