What Home Buyers and Sellers Need to know about Cash Offers
The Myth of Cash Offers in Silicon Valley Real Estate Market
As you already guessed, today's topic is about the myth and misconception of cash offers in real estate transactions.
In my capacity as both a buyer and a listing agent in Silicon Valley, and therefore having been on both sides of the fence, I would like to share a few important takeaways about cash offers for the benefit of every home buyer and seller in the Bay Area.
Cash is real and is king. True and false at the same time.
I do not know any real estate agents in Silicon Valley, including myself, who is not hopeful to receive at least one cash offer for her/his listing.
Silicon Valley being home to some of the wealthiest buyers and investors in the US, cash offers are definitely not a myth around here.
However, I often see cash offers in Silicon Valley made from pooling financial resources from multiple family members from different generations.
But come to think of it, even the wealthiest investors (such as Facebook's Mark Zuckerberg for instance) will take a loan, even small, when it comes to buying a property for obvious tax and financial planning reasons.
There are specific situations and obvious advantages to accepting a cash offer versus an offer funded with a loan:
You need to sell quickly. Under those circumstances, a cash offer will allow you to close the transaction in a very short time span, usually between 10 and 15 days after the accepted offer is ratified by both parties
The overall condition of your home is so bad (e.g. teardown homes, foreclosures, etc) that no lender would lend money to anyone to buy it
Cash offers without any loan, appraisal or contingencies are safe as it is very difficult for a buyer to bail out of the contract without losing the initial deposit paid within 3 days of acceptance of the offer.
Let us look now at the cases where a cash offer is actually less attractive than an offer with a loan.
For instance, not all cash offers are true cash offers. A cash offer which includes a clause related to the condition of the property and/or a request to appraise the property by an independent third party is far from the ideal situation. In this instance, cash buyers can bail out of the contract without losing their initial deposit.
Another well known fact among Realtors and home sellers is that cash buyers tend to come in at a much reduced offer price, which is the price to pay for the velocity of the transaction.
A cash offer from foreign real estate investors where the cash actually sits abroad may not always be the safest bet. While the cash may be out there, it might be subject to delay as a result of scrutiny by financial authorities and title companies before it is made available to its owners for any transaction in the US. Eventually, it might be just as quick to accept a domestic offer with a loan.
To wrap up, the takeaway for home buyers is that it is entirely possible to compete with a cash offer; For home sellers, remember that cash offers are not always the offers you should favor first.