Cash is king! So if you’re paying cash for your property purchase, you can get huge price discounts, right? Well, not quite.
While sellers generally prefer all-cash offers, there are other factors they consider. Plus the frequent buyer competition in our area makes it harder for cash offers to stand out.
Can You Get a Better Deal Paying Cash for a House?
Yes and the statistics below prove it. However, the discount off list price between cash and non-cash transactions is little. Definitely not the 10 to 20% some of my buyers were hoping for.
Why is that?
Let’s look at the benefits to a seller when dealing with an all-cash buyer.
First, the sellers don’t need to worry about the buyer’s financing, the money is already there. Many transactions fall through because of the financing (as explained in my post on getting out of real-estate contracts). However, a good local lender will review the buyer’s creditworthiness very thoroughly, so the pre-approval letter could be as good as cash. Some lenders have strong reputation within the realtor community, thus making competing cash offers less appealing.
Second, all-cash contracts can close very quickly, usually one week. If the seller is in dire need of money, this could be the only way to get it so fast. But that’s rarely the case. Many local lenders can close a properly pre-approved loan in 2-3 weeks. Still not as fast as cash, but the difference to the seller will be marginal. Yes, they will save one or two weeks on their mortgage payment, but this won’t be worth $30,000 after all. So the monetary benefit of a quick closing is limited.
Third, appraisal won’t be an issue. With financing, the lender needs to ensure the property is adequate loan collateral. If the appraisal value comes in below sales price, the two parties will have to renegotiate. And if they don’t, the contract will most likely fall through. However, some buyers choose to waive the appraisal contingency altogether. Others offer a little buffer. For example, if appraisal comes in $20,000 below sales price, the buyer will cover that difference and not ask the seller to renegotiate.
These are the major benefits to a seller from a cash offer. And pretty much all of them can be matched by a financing offer if the buyer wishes to.
Let’s look at some specific sales data comparing the two types of offers.
Sales Stats from Around the DC Area
There have been 1,586 cash transactions over the past 12 months, ranging from $15,000 to $6.8M (who are these people?). On average, the close price was 97.93% of list price which is a discount of 2.07%.
All other transactions over the same time period came to 6,320, ranging from $25,000 to $7.8M. On average, the close price was 99.71% of list price which is a discount of 0.29%.
The difference between the two: a not insignificant 1.78%.
Cash transactions over the past 12 months: 404. The range has been from $44,000 to $2.4M. On average, the close price was 98.80% of list price which is a discount of 1.20%.
All other transactions over the same time period: 2,326, ranging from $120,000 to $3.1M. On average, the close price was 98.97% of list price which is a discount of 1.03%.
The difference between the two: a whopping 0.17%.
Cash transactions over the past 12 months: 305. The range has been from $95,000 to $4.9M. On average, the close price was 96.11% of list price which is a discount of 3.89%.
All other transactions over the same time period: 2,038, ranging from $85,000 to $3.5M. On average, the close price was 98.59% of list price which is a discount of 1.41%.
The difference between the two: a little more substantial 2.48%.
What’s Considered Cash?
Money in the bank. Not a 401(k), stock portfolio, certificate of deposit or equity in other real-estate. Some listing agents and sellers may make an exception, but generally 100% of the money has to be ready to go. Otherwise the offer doesn’t seem as strong and appealing.
You can attach a bank statement to the offer showing the available balance (make sure to black out the account number and any private details such as your SSN). Alternatively, you can have someone at the bank write a letter saying that you have at least that much available in the account along with their contact details.
Even though it’s possible to get a better price when paying all-cash, you should still research the local sales data. Some locations may be more lucrative than others. I’ll be happy to run more specific analysis for you, just contact me below: