Is cash still “King” in a real estate transaction?

The short answer is no!

When looking to purchase a property you hear buzz words like “there is a cash offer on the table”, or “we have multiple cash offers”. My response to that as a senior loan officer working for a direct mortgage lender is “so what”. Even when my wife and I were purchasing our home, our realtor mentioned to us that the seller may not take our offer as we were not putting as much down as another offer that the seller had received. Ultimately our offer was accepted and we were clear to close within 4 days of signing the contract of sale. How is that possible you ask? The title search, appraisal, and underwriting process were all started at or before the signing of the contract.

???????????????I believe there needs to be a paradigm shift with how the industry approaches a financed offer, and a cash offer. In order to explore this further we need to look at the differences between a cash offer, a commitment from a direct lender or bank, a pre-approval, and a pre-qualification.

·????????A cash offer – the buyer has presented verified assets with a verification of deposit and/or a bank letter showing that their funds have been verified.

·????????A commitment – credit, income, and assets have been verified by an underwriter and the lender is providing a commitment to lend subject to an appraisal and a title search.

·????????Pre-approval – a loan officer has verified the credit, income, and assets of the prospective buyer and has presented a letter explaining the borrower’s ability based on their experience and opinion.

·????????Pre-qualification – a loan officer has NOT verified the credit, income, and assets of the prospective buyer and has presented a letter explaining the borrower’s ability based on the verbal information provided by the buyer to the loan officer.

We also need to explore whether contingencies are involved in these offers. Regardless of a financed, or cash deal is it subject to any of the following?

·????????Appraisal – are they purchasing subject to the home appraising for a certain value, or will they cover the difference if it under appraises.

·????????Title search & insurance – this is always needed in a financed transaction and can be waived in a cash deal. Although in my professional opinion this is a necessity, is the cash buyer waiving their right to obtain a title search & insurance?

·????????Mortgage contingency – if going with the pre-qualification and pre-approval route, you can waive your right to a mortgage contingency giving the seller assurance that you will get the mortgage and/or they can keep your down payment.

·????????Inspection – is the purchase/sale subject to a successful inspection or is the buyer waiving their rights?

·????????Home sale – is the purchase of this home dependent on sale of their existing home? This isn’t used that often anymore, yet this can cause an issue if one transaction is dependent on another.

In my opinion cash is not “king” anymore. As a buyer you can win that purchase, ahead of a cash offer if your offer is high enough and you have a commitment from a lender stating that they are committed to lending you those funds. There is no reason to lose offers to cash buyers. The commitment/underwriting process can take as little as 24 hours, and as long as a few weeks depending on which lender you go to – the process is completely worth it in the end.

Steven Paul Ross is a licensed mortgage loan originator (NMLS 71781) working for a direct lender specializing in residential home loans. Steven can be reached at 917-669-1658 via text/call, and can be emailed at [email protected] for any questions/inquiries.