All-cash offers to purchase a home are great, except when they’re not. Sure, they sound wonderful—No underwriters! No appraisal! Fast closing! But then the second shoe drops: it’s a lowball offer.
Whether I’m representing a seller or a buyer, I absolutely loathe dealing with such offers. And they are always presented in a tone that is borderline insulting: “Look! You should accept less money for your home because, because, I’ve got CASH!” Yes, that certainly quickens the pulse of a seller who would just love to walk away from thousands of dollars for no good reason.
Don’t get me wrong; all cash offers are not created equal. If the offer amount and all other terms are identical or close, a cash offer will almost always trump one with a mortgage. There is still a lingering mystique that Cash is King. But we’re not talking about frugal and logical buyers here competing with a financial advantage; we’re talking folks who are stuck in a 2009 mindset and pay more attention to relatives and neighbors than to real estate professionals.
So why do (some) buyers make lowball cash offers? That practice goes back to the bad ol’ days following the real estate crash when lenders tightened their rules, making getting a mortgage about as easy as getting your kid into Harvard. There was a period of time when a mortgage pre-approval almost meant nothing; both sides of a transaction held their breath while the bank looked for every excuse to deny a loan, and the percentage of dead deals was quite high.
In those days it made absolute sense to make a low cash offer. As home prices fell by the day, sellers were happy to take what they perceived to be a guaranteed sale rather than watch yet another transaction fail because of a denied loan. Cash was indeed king back then.
But happily those days are behind us, and the incidences of buyers getting a loan denied are relatively low. So the incentive to accept a lower offer simply because it is all-cash is no longer there. As agents are wont to point out, a cash buyer will not bring a bucketful of greenbacks to the closing table; he’ll bring a bank check. And it is no better or worse than a bank check issued by a mortgage company.
“But cash is a guaranteed sale!” you say. Not so fast. Last year one of my sellers accepted a fairly substantial cash offer at the beginning of the spring market, with closing scheduled for the end of June. All went swimmingly until the week before closing, when the buyer decided that he simply did not want the house after all. No sale, and worse yet, no financial penalty to the buyer, who got his entire escrow deposit back. Ask me how I felt then about cash buyers.
So how do agents deal with smug all-cash lowballers? We simply do our best to explain that times have changed and sellers will not bet thousands of dollars against buyers with mortgages. Sometimes we win, and sometimes it takes such clients to lose several excellent potential homes due to their outdated thinking.
Buying a home for cash is certainly the way to go. No money market fund or CD can match the appreciation of a home over time. But buyers, please use that to your advantage, not to try to beat up on a seller. Make an offer that makes you look genuine and promising, not like some huckster in a plaid jacket with greasy hair and greasier palms. That will get you nowhere quickly.