How to Make an Irresistible Cash Offer on a House

A 'For Sale' sign in front of a home in Arlington, Va., on Aug. 22, 2023. Andrew Caballero-Reynolds/AFP via Getty Images

It’s a seller’s market. And if you’ve found the perfect home, you’re probably up against a lot of competition to buy it. Sellers want the most money they can get and are not above instigating a bidding war.

But there is a way to stand out from the crowd. Most buyers finance their homes with a mortgage. If you can come in with a cash offer, you might pull from the pack and land your new house. But how do you make a cash offer? And what if you don’t have the cash?

How Cash Offers Work

Sellers like cash offers because they can sell their house quickly without waiting for a bank or credit union to approve a mortgage.

It’s a straightforward offer. You find a property and then submit an offer without a mortgage loan. In most cases, you'll need the funds to pay for the house. Money can come from:

• selling existing house
• savings
• gift money

You’ll pay for the house via a wired transfer or cashier’s check.

When you sign the contract, you must provide proof of funds. This is evidence that you have the liquidity to make the purchase. It is usually bank statements and a letter of endorsement from your financial institution.

You'll still need to deposit earnest money once the house is under contract. Earnest money is a non-refundable down payment.

When to Choose a Cash Offer

There are a couple of reasons making a cash offer makes sense when buying a house. One reason is a hot sellers’ market.

When real estate inventory shrinks and demand increases, the market can turn hot fast. You might find the house of your dreams, but you’re one in a crowd of prospective buyers. The buyer could receive several offers and a bidding war is likely.

If you want to stand out from the competition, a cash offer will do that.

High-interest rates will also motivate a buyer to make a cash offer. In March 2024, the 30-year fixed mortgage annual percentage rate (APR) hovered around 7 percent.

A cash offer could save thousands of dollars in interest.

Steps to Making a Cash Offer

Know the house and neighborhood you want to buy into. Ensure you know and understand the comparables with the other homes nearby. If the house next door just sold for $250,000 and the home you’re looking at is comparable, you'll know how much you should offer the buyer.

You'll then want to agree on a purchase price with the seller. When you settle on the price, let them know this is a cash offer.

At this point, you'll need to show proof of funds. Ask your financial institution for a written endorsement and prepare to show your bank statements.

Next, you'll want to protect yourself by having the property inspected. This is highly recommended, but many in a competitive market opt to waive it.

Once you’re sure the property is in good shape or if you’ve decided to skip an inspection, both parties sign the offer. This is the contract of sale.

You must set up an escrow account with a title company or attorney. You will deposit the agreed-upon earnest money into the escrow account. Then, you must obtain a title report. This will ensure that the title is clean at closing.

Once you have a clean title, you can deposit the rest of the cash into the escrow account. At the closing, the funds will be transferred to the seller, and you will receive the deed.

What to Do When You Don’t Have the Cash

It’s competitive and you want to make a cash offer to seal the deal, but you don’t have the cash. There is a way to make a cash offer without you having cash.

Use a cash-offer financing company. Cash buyers use these companies to front the cash on a buy. Later the buyer repays the company with mortgage financing.

It’s not an inexpensive proposition to use a cash-offer company. Most charge a service fee of 1–3 percent of the purchase price. Some available companies include:

• Ribbon Home
• Homeward
• Open Door Cash Offers

Cash-offer companies work in different ways. Some back your offers with cash while others work with “buy before sell” home buyers.

Regardless, if you are going this route, ensure you’ve researched before committing.

Pros to Making a Cash Offer

There are several pros to making a cash offer. Home sellers may be swayed to sell to you over others. And you’ll save thousands of dollars on interest payments.

You'll also save on mortgage-related closing costs.

Cons to Making a Cash Offer

A lot of your liquidity is tied up in a non-liquid asset. If you have an emergency, you might find yourself short of funds.

Some people who pay cash skip the appraisal stage. Banks require appraisals, but if you’re paying cash, you may be tempted to just make your offer and pay. But you could end up paying more for the house than it’s worth.

If you itemize your taxes, you’ll miss out on tax incentives. You won’t have mortgage interest to deduct.

Offering Cash for a House

In today’s competitive real estate market, it may make sense to offer cash instead of waiting for a mortgage to be approved. Cash can quickly end a bidding war.

Cash will also let you avoid the current high-interest rates.

Research and consult with an attorney or real estate agent before proceeding.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.