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What makes an Offer a Cash Offer?

Charles Cherney

Passionate about teaching after graduating from Harvard, I ultimately found myself drawn into the world of real estate in Cambridge and Somerville...

Passionate about teaching after graduating from Harvard, I ultimately found myself drawn into the world of real estate in Cambridge and Somerville...

Apr 23 3 minutes read

What makes an Offer a Cash Offer?

Check out my video below about what makes an offer a cash offer.

What makes an offer a cash offer?

The short answer is CASH.

A larger number of properties are selling for over the asking price with multiple offers. The litmus test of the buyer comes at the offer stage. If a buyer needs a loan to complete the purchase, the buyer attaches to their written offer an up-to-date pre-approval letter from a reputable lender for the loan amount.

In the Cambridge and Somerville market, many buyers are cash buyers. Cash buyers present proof of funds for the full purchase price or more with their offers.

There are really two types of cash buyers:

1) Pure all cash buyer who has the amount of the purchase price or more in cash on hand and truly pays cash – very rare. Proof of funds presented and cash paid.

2) Buyer who has proof of funds equal to or in excess of the purchase price and who submits proof of funds with offer – however, buyer still gets a loan set up by closing. Please note that proof of funds is usually a letter from a financial institution or a financial advisor OR redacted bank statement(s) or redacted investment account statement(s) that equal or exceed the purchase price.

Some buyers without proof of funds who must get a loan to purchase a property are still dropping their mortgage contingency in order to make their offer more attractive. This is risky, because if the loan is not approved, you risk losing your purchase and sale deposit (typically 5 to 10% of the purchase price). These buyers attach a pre-approval letter instead of proof funds. In this sense, they are not really cash buyers. And yet they are still willing to drop the mortgage contingency from their offer. Risky.

If you plan to drop the mortgage contingency from your offer, you really need to understand that your offer is not contingent upon the loan being approved and therefore you need to understand what you would do if the loan you are seeking is not approved. For example, if you are seeking a loan of $400,000 on a purchase price of $500,000, what happens if the loan for $400,000 is not approved? You need to address this question with your lender up front. Please note that buyers who remove the mortgage contingency from their offer but who are still planning on getting a loan, are buyers who are usually very certain about the lender they will use and have developed a very clear understanding with their lender of how they will handle any and all situations that may arise and have a plan in place for all possible scenarios.

Cash is king. Just make sure you know what you are doing if you are fortunate enough to be playing the cash card.

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