Sellers prefer cash offers and it's easy to understand why. Cash transactions tend to close faster because they don't have to go through the mortgage underwriting process. In most cases, a cash offer is a stronger offer. This is especially true in a seller's market or in a market where there aren't many homes for sale when buyers compete with each other for limited inventory.
Buyers who pay in cash have an advantage over buyers who must obtain financing. Depending on the temperature of a market, paying cash for a home has benefits from the seller's point of view, strengthening their negotiating position if they can afford to pay in cash. Cash-paying buyers also avoid many of the costs associated with closing a loan, not to mention years of mortgage interest payments. There's no doubt that it's a luxury, but cash offers don't just come from the super-rich or Wall Street investors.
Some cash buyers can even pay cash and then refinance later to take advantage of historically low rates. If you receive a cash offer from a buyer who is more or less a repeat customer, it may be easier than if you are working with a cash buyer for the first time. According to an Opendoor survey, 75% of sellers say that a funded offer would have to be 10% higher than a cash offer to win a bidding war. Cash buyers should take care of securing a title and custody company, and have an experienced buyer agent (and possibly a real estate attorney) to ensure that the paperwork is complete and correct.
While those are part of the equation, many cash offers come from regular consumers who are just average Joes on the street. A cash offer completely eliminates the uncertainty of the appraisal process of the home sale equation. Another difference between cash offers and conventional home sales? There is no requirement to get an appraisal. As Dugan says, “The seller has a better guarantee that the transaction will close in cash.
Often, home sellers choose a cash offer rather than an offer that will be financed by a mortgage, even if the cash offer is lower. An appraised value lower than the amount of a mortgage can mean cancellation of the contract if a seller does not lower the price or if a buyer does not increase the down payment. On the other hand, a cash transaction can close in just two weeks, which is much less time to worry about a sale not taking place.