Today I wanted to touch on a trend that I have personally witnessed 3 times this month. We all know that “Cash is King” when negotiating a sales contract.
However, are all these deals really closing 100% cash from the buyer’s pockets?
No, not really.
What do I mean?
Well, the buyer makes a cash offer with no financing contingency meaning that there isn’t a lender involved which also means there isn’t an appraisal contingency. The seller feels like this would be a guaranteed closing rather than running the risk of the lender at the end pulling the plug on the borrower and than the deal is dead. So, the seller is inclined to maybe take a little less money because of the lower risk tied into a cash deal. Obviously, the buyer has provided proof of funds and demonstrates that all the money is in the bank.
Why would a buyer offer a contract without a financing and appraisal contingency?
Makes the offer more attractive to the seller especially during multiple offer bids if the property is very desirable.
Fine, this is great but what’s next?
Buyer goes for a loan with the bank.
Why would the buyer do this?
In order to be more liquid. Like this, the buyer can keep the money for other opportunities and borrow the difference from a lender.
No risk for the seller because there isn’t a contingency for financing. Risk is on the buyer. That buyer must close “All Cash” if that lender he/she is trying to obtain does not occur. For X,Y or Z reason, the deal does not close, the buyer’s escrow deposit is at risk.
This is happening much more frequently due to the amount of competition on the purchasing of properties and banks have loosened up on the lending side for the most part.