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You are here: Home / Blog / Cash May be King, But it Won’t Guarantee the ‘Royal Treatment’

Cash May be King, But it Won’t Guarantee the ‘Royal Treatment’

December 30, 2011 By Scott Sandberg Leave a Comment

Conventional wisdom in real estate, and many other industries, says that cash is king. So buyers bringing a cash offer often beat out buyers who need a mortgage, even if the offers are otherwise the same or quite similar.

Smart idea? The answer, I think, is not always.

With a cash offer, the theory goes, a lot of hurdles to a home sale are removed. There’s no mortgage to obtain, appraisals may become less of an issue (depending on the buyer) and there tend to be fewer contingencies.

A buyer who needs a mortgage, however, must be approved by the bank, first and foremost. Then, the bank’s appraisal has to go through and the buyer’s every financial move will be scrutinized and tracked until the last document is signed at the closing table.

So while the cash buyer may seem like a slam-dunk, sometimes, it’s the buyer with a mortgage who’s got more skin in the game. I can tell you from experience…

Recently, I worked with a buyer who had several options open to him. He could build a new home on land he already owned, or could try and find an existing home that would allow him and his family to move right in. He worked closely with a lender and got approved for a mortgage.

He quickly found a home that fit all his criteria and made an offer. Lo and behold, in the midst of negotiating his offer, another offer comes in, this one for cash. The offer must have been a bit more than my buyer had originally offered, but a counter offer was essentially a waste of time. The seller saw ‘cash’ and immediately took the competitive offer, thinking they had a ‘sure thing’.

Well, you can probably guess what happened next. The seller’s agent called me a week or so later and told me the cash buyer had backed out. Seems they’d found another home that caught their eye. So, she wondered if my buyer would be interested in submitting another offer.

Unfortunately for her seller, the answer was no. My buyer had already begun planning to build his dream home, and he had no interest in more ‘negotiating’. And I couldn’t blame him…

So what’s the moral of the story? If anything, I’d say it’s always look at the bigger picture. Financing is just one piece of a larger puzzle when it comes to buying and selling a home. But the buyer willing to clear the hurdles to get a mortgage, especially in today’s market, may be just a bit more committed to the purchase than a cash buyer.

Granted, it’s sometimes not easy to ascertain a potential buyer’s motivations. But when you take the time to look beyond just the dollars and cents, buyers and sellers both can feel like they’ve made the right decision.

And that’s all anyone can ask when making any big decision, right?

Filed Under: Blog Tagged With: Home Buyers, home sellers, Real Estate

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