A few years ago during the “mortgage collapse” and “big recession”, it was very difficult for many people to get approved for a mortgage. During this period, those with cash could get a great deal on properties. Homeowners who needed to sell for one reason or another accepted the majority of these offers, and many were lowballed bids. Lowball offers tend to be those that are more than 10% below the asking price. Cash investors would regularly present scores of lowball bids on multiple properties just to see who would take them up on it.
Cash has several big benefits in a real estate transaction. The most obvious is that you don’t need bank approval to buy. Several steps in the buying process such as appraisals, commitment letters, applying for mortgage insurance and large amounts of paperwork are not needed. As a cash buyer, you don’t have to wait for any third party to give you the ok to close on the property. The transaction is much simpler and a lot quicker.
Let’s fast forward to today. Things have been improving but, let’s be honest, they’re not back to the levels prior to the housing bubble burst. Today, banks are lending once again and mortgages are being processed. Mortgage rates are still near historic lows, but if you have a steady job, good credit and some money in the bank, you’ll probably get approved for a mortgage. The quickness and ease of a cash closing is still there, but banks are now lending money.
Recently, I had an agent present me an offer on one of my listings. This property had been on the market about a month. The offer came in at over 20% below the list price, with no data included to justify the offer price. The only fact the agent continually focused on was that this was a cash deal. The law is very specific; I have to present all written offers to my client. Their reaction was best summarized by saying, “So what?” - what did cash matter when the offer is so low? My client agreed that a small discount might be given to a cash offer, but it didn’t justify a fire sale.
The agent couldn’t understand why the offer was rejected. All they kept saying was, “It’s a cash offer.” Cash is great; don’t get me wrong, we all probably want more of it. In this day in age, no matter how someone finances a real estate transaction, if the seller is getting proceeds from the sale, they’re leaving with a check. The cash offer my client received has only one problem; not enough cash. And while cash can sometimes get you a slight discount, a well-round, fair offer goes a long way.