The Risks and Rewards of Making a Cash Offer on A Home Purchase
Jan. 18, 2023
There’s no question about it — the real estate market has gotten pretty wild. These days, even modest homes are receiving multiple bids from would-be buyers. Often, these bids are sight unseen and well over the asking price!
If you have the means to do it, you may be thinking about offering cash to the seller of the home you want — but is that really wise? Maybe. But you do need to consider a few things before you take that leap.
Cash Sales Come with Pros and Cons
On one hand, it seems like a cash offer couldn’t possibly have any drawbacks — but you may be surprised. Consider the following:
You may have to forgo several contingencies to the sale. Contingency clauses protect you from a bad deal, but you may need to forgo even the inspection contingency to sweeten the deal and compete against any other cash offers. That could leave you exposed to problems down the line.
You may be paying more than the home is worth. Typically, a cash deal means no bank involvement, and that means no appraisal. Without the appraisal, you don’t know if you’re paying more than you should — and it could take years before you financially recover from a bad loss.
You may be leaving yourself “cash poor.” When all your money is tied up in the home, you may have to eventually get a loan just to do upgrades and repairs — and that means going through the whole loan process again.
So, why make a cash offer? Because it automatically means a “done deal” for the seller. Sellers don’t want to worry that a loan will fall through, the appraisal will come back too low or the buyer will get cold feet and back out. If you’re truly in love with a property, it may be the best way to get it. Closing is also typically faster with a cash sale, and there are fewer overall expenses.
Only you can decide if a cash offer is something you want to do — or should do. Knowing more about your legal rights with and risks of a cash offer in a real estate deal can help you gain clarity and direction.