Why Cash Buyers Have More Leverage in a Sellers’ Market

In a strong sellers' market, home buyers are told again and again that they have the lower hand when it comes to making offers. However, cash buyers have the strongest negotiating power of any type of home buyer for several reasons. For these cash buyers, it's still a sellers' market - but with more advantages. And in a multiple offer situation, sellers might choose the cash buyer even if his offer price is lower because there are fewer unknowns (and fewer causes for the home to fall out of contract).

Financing is Not a Concern

In our current housing climate of stricter mortgage rules and escalating prices, financing is a very common reason that real estate deals fall apart. Even buyers who have a pre-approval letter in hand when they make an offer aren't immune to financing fall throughs. Occasionally even these buyers go through the inspection process, get a cleared CL-100, prepare for closing, and then during the underwriting process find out they can't get the loan - and this would happen the week before or the week of closing. At this point, the seller would have paid for repairs and other costs, so it can be a tough pill to swallow when he has to put the home back on the market and start over again.

No Appraisal Problems

In a market where prices are steadily increasing, appraisal issues are also common. Most buyers don't want to fork out the $500 cost of an appraisal, but a mortgage company always requires one prior to closing. When a buyer doesn't have to get a mortgage, he's usually not going to waste the money for an appraisal.

Appraisers look at the past 5 months' sales for a given neighborhood and home type. When prices are going up, it's hard to compare a $300K house now when it might have sold for $290K just 5 months ago. These older, lower priced comps have to be included in the appraisal report even when it's clear to everyone involved that the home is certainly worth the purchase price. This can be really frustrating for sellers in a multiple offer situation when they receive 2 or more full price offers, yet an appraiser says that the home is worth less than that contract price. It's easy to see why sellers will forego appraisal contingencies when possible by choosing a cash buyer.

No Closing Costs

Most cash buyers don't require closing cost assistance, which helps them during negotiations to create a cleaner contract. Keep in mind that this factor ties back in with appraisal problems. Let's say that a buyer makes an offer of $205,000 on a $200,000 list price home. In the contract, the buyer asks the seller to pay $5,000 of his closing costs. This makes a full price offer, which seems ideal for the seller. However, changing the purchase price to $205,000 means that the home has to now appraise for that number. If the appraisal value was already a concern, this extra $5K is going to make the seller antsy. If the home doesn't appraise for $205K, both parties might be back at the negotiating table. Or worse - the buyer might back out of the contract.

Usually Require Fewer Repairs

A $100 plumbing repair to a first time buyer means much more than it does to a cash buyer/investor. Understandably, many home purchasers are tight on money during the buying process. They want to keep their out of pocket expenses as low as possible, especially when they might be stretching their budget to make their 3-5% down payment (not to mention closing costs).

Cash purchasers usually have shorter repair lists after a home inspection compared to all other types of buyers - just one more reason why sellers (and their agents) prefer to work with them.