If you’ve been in the market for a home for any amount of time, you’ve probably learned that sellers give priority to buyers who pay cash. But you might be wondering why sellers prefer cash buyers. The sellers are going to get their money either way (whether from the buyer’s savings or from the buyer’s mortgage loan), so why does it matter?
Here’s a look behind the scenes to explain why sellers prefer cash buyers. And if you can’t pay all cash, we’ll give you a few tips to increase your chances of getting your offer accepted.
Why Do Sellers Prefer Cash Buyers?
One reason sellers prefer cash buyers is because deals can often close faster when you don’t need to get a lender involved. But the primary reason sellers prefer cash buyers is because there is a lower probability of the deal being delayed or falling apart when buyers use all cash. There are two key reasons why.
Reason #1: Sellers don’t have to worry about financing issues with cash buyers.
Financing issues account for around 21% of contract delays and around 7% of canceled contracts (according to data by the National Association of REALTORS®). If a buyer is willing and able to pay all cash, they don’t need to secure financing, so this becomes a non-issue.
Imagine yourself as a seller for a moment. You likely invested a fair amount of time, money, and energy in getting your home ready to be listed on the market. You’ve worked your schedule around showings of your home, keeping your home show-ready at all times, and making arrangements to get kids and pets out of the house for showings and open houses. And you probably need to move quickly because you have a new home lined up or you are relocating for a new job by a certain date. When you finally get a buyer, you need that deal to close. Because if it doesn’t, you have to go back to square one and start showings all over again.
So sellers need to choose the offer that is most likely to close on time. And cash buyers are statistically more likely to do that.
Reason #2: Cash buyers can bypass appraisal issues.
Appraisal issues account for around 26% of contract delays and 15% of contract cancelations. Here’s why appraisals matter:
If a buyer is getting a mortgage loan to purchase a home, the lender needs to be sure that the home value is high enough to cover the amount they are lending. They don’t want to lend you $1,200,000 for a home that’s only worth $1,000,000.
Now, if a buyer is paying all cash, they can choose to waive the appraisal. They can decide they’re willing to pay more for the home than it is currently worth because they expect the property value to keep climbing. So again, this makes cash buyers less risky for sellers.
What to Do If You Can’t Pay All Cash
How can you compete with cash buyers if you need financing to afford your new home?
Here are a few ideas:
Increase your down payment if possible. Not only will this give sellers more assurance that you are a serious buyer, but it also means it will be easier for you to qualify for the amount you need to finance. Even better, if you can increase your down payment to cover the difference between the loan amount and the appraisal value, you can waive the appraisal contingency.
Bring a home inspector to showings with you. If you’re comfortable with the inspector’s quick overview of the home, you can waive the home inspection contingency, which will make the sellers feel better about accepting your offer.
Bring your highest offer. When you have to compete with cash buyers, out-bidding them might be your best weapon in winning the home.
At Sequoia Real Estate, we know what it takes to get an offer accepted, and we know how to negotiate aggressively on behalf of our clients to get you the best possible deal on your new home.
If you’re serious about getting into a new home this year, whether as a cash buyer or through financing, we can help. Contact Sequoia Real Estate today.