The Eastern Massachusetts market has seen an influx of cash buyers. This can be discouraging to other buyers who feel that they cannot compete. We thought it would be interesting to take a closer look at how cash buyers compare to those with mortgages and ask the question, “Are cash buyers always better.”
Do Sellers Get More with a Cash Buyer
How do cash buyers compare to buyers with mortgages when it comes to the numbers and seller’s net? A sellers’ closing costs and net earnings are actually no different; expenses are not dependent on buyers’ financing. Furthermore, sellers will always receive cash (well,… a check) at closing. So, from an earnings perspective, cash offers are the same as other offers.
Why Are Cash Offers More Appealing
All other things being equal, sellers prefer cash buyers because of the mortgage contingency. Buyers who need a mortgage to purchase a home must apply for that mortgage. An appraisal is also required to justify the purchase price. The time it takes for lenders to review and approve a mortgage application is anywhere from 2 to 6 weeks. If the mortgage is not approved, the deal will likely fall through and the seller must start all over with a new buyer. This will, of course, delay the closing since that new buyer will also need time to obtain a mortgage. For sellers who need to sell their existing home in order to buy a new home, such a delay can be really stressful and problematic. A cash offer avoids that potential delay and provides more certainty that the deal will close on time.
Are Cash Offers Always Better?
Although cash buyers clearly have an advantage, cash offers are not always better when it comes to pricing. Cash buyers know that they are more appealing to sellers and will often offer less than other buyers would. That price difference will be weighed differently by different sellers. For sellers who absolutely need to close on a specific date, a cash offer may be worth receiving less money for their home. Sellers with flexibility may willingly take on the risk for an added return. Think of it this way, if the price difference is $5,000, is it worth that to lose 3-4 weeks waiting for a buyer to receive mortgage approval?
Reviewing Competing Offers
It’s important for sellers to always look at the full picture when reviewing competing offers. It’s not always about just price, time frame, or financing. Sellers should consider all factors in an offer to make the best decision possible given their needs and circumstances.