What is the value of a cash offer in a real estate deal?

Let’s take a realistic look at cash offers in a real estate deal. What are they really worth in helping to seal the best deal? In land development I have most often been the seller and I have done my fair share of cash deals selling lots to buyers. On the other hand, I have never financed a land purchase, so I guess that makes me a cash buyer as well.

Having been both, I still find that there can be misunderstanding about the value of a cash deal in real estate, sometimes even with experienced buyers and sellers. So let’s clear up what the value can be for a cash deal in real property and under what conditions it may apply.

But first…

What a cash deal is not:

As we all realize, cash offers are not really cash. That hasn’t happened since the last guy showed up with a bag full of money at closing, whenever that was.

A cash deal is not always a fast track to a lower purchase price. I don’t know how many times a buyer or their agent has approached me saying that they are “cash buyers”…just before offering a low ball purchase contract. Cash deals do not guarantee a better contract price with me. Why? Because I am not desperate to sell. If a seller is, well that can be another story.

Being a “cash buyer” only goes so far:

My buddy Mark and I have been best friends since the third grade. Since that was 57 years ago, that makes us life-long friends. Mark is an old school dude and he is a truly honest person. He’ll tell you what you need to hear, even if it hurts, but he is never hurtful in doing it. I owe him the same level of candor and I returned the favor one time, a few years back.

Mark wanted me to advise him on some acreage to build a hunting cabin. We’d been hunting whitetails east of Orofino, Idaho for a few years and had spotted tons of great land. We made the trip back and forth a few times and found an area with many quality parcels to choose from.

Mark’s a good saver and he was not looking to finance anything in a deal. He settled on a couple of top choices and then started in telling me his viewpoint as a “cash buyer”:

“Since I’ll be a cash buyer I’ll be able to knock about 30% off any asking price”.

What follows is some of what I said to Mark and it might serve others looking to participate in a cash deal for real property.

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Cash deals may close faster:

In cash deals there would be no mortgage application, financing appraisal, credit check, loan processing or approval time involved. Therefore, cash deals may close and fund faster since the time delays from putting financing in place are avoided. Reduced time to close could be attractive to some sellers.

Simplified contract:

With no financing contingency in the contract, the possibility of a sale failure from a loan problem is gone. The contract is more streamlined and has fewer obstacles for the buyer to overcome, which can also make the deal more attractive to the seller. Again, a faster closing and maybe a better sales price might be the result.

One thing - in my opinion a smart buyer should not waive an inspection contingency on the property. The time it takes for due diligence on a property inspection can be as long as putting the financing in place, especially if the buyer is pre-approved. Maybe time-to-closing is saved, maybe not. Depends on what the inspection shows.

For more on inspections see: How To Do A Property Inspection: https://www.landdevelopmentrealities.com/home/2019/3/19/how-to-do-a-property-inspection

Who can be good prospects for a cash deal?

The seller that has another property under contract or has already closed on another property.
A seller that wants out quickly for whatever reason and has equity in the property.
Sellers that have equity in the subject property, but are in need of fast liquidity.
A cash buyer can stand out amongst the competition in a hot market - where there are multiple offers for a given property.
Land deals where the property has been for sale for a long time.
Land projects and investment properties that are upside down and the owner wants to bail out.
Properties where there have been “Sale Fails” and are now back on the market once again.
Speculative investors that will waive most contingencies and then close quickly.
Investors buying run down or trashed properties.
Flippers buying properties that have deferred maintenance.
Heirs in an estate. They always seem to want the cash…fast!
What is the value of a cash deal in real estate?

As illustrated above, if certain unfavorable conditions exist for the seller, a buyer might be able to strike a low-ball price deal. That is what I said to my friend Mark so he knew that being a cash buyer does not mean a low ball offer will be accepted for a “cash deal”.

There is also an optimal range for the unfavorable conditions listed above. For instance, if a troubled property owner is asking $225,000 and owes the current lender $215,000, how much low balling can he really agree to? There’s a point where the troubled seller can’t go lower for a cash buyer, even if he wants to.

So, keep in mind that a cash buyer may be able to get a better price, but not solely because he has cash. In many situations other conditions need to be favorable to make the most out of the opportunity. Good luck!

Contact me at: ldr@landdevelopmentrealities.com