What does a "cash offer" really mean?

Question

I feel silly even having to ask this question, but how exactly does a "cash offer" transaction occur on a home/lot? Deals are moving quick in my area, often with several cash offers made in the first day a deal is available.

Are most of these folks just making offers with no financing contingency, then tapping lines of credit or using other instruments to close these deals, or are they literally wiring cash from their checking accounts at closing? One builder I spoke to said he always offers "cash", but usually that just means his bank will give him a proof of funds letter and then he figures out how to close it after that.

In the large multifamily world in which I work, most everything is bought with financing and even when someone says they are offering cash, it is still financed somehow. We never include a financing contingency, but the assumption is always that the deal will be financed.

I'm sure there is a simple explanation for this that I'm missing.

Tom Reynolds · Answer

Often a property will have a condition or conditions that will not comply with the conventional mortgage guidelines. Usually to qualify for a conventional mortgage for a property with habitable space (a residence, multi-family or some commercial use properties) it is required to be "livable/habitable". This means that if any of the components of the structure, plumbing, electrical or mechanical systems are deficient and will not pass the lenders inspection, it will not qualify for a loan. Usually the seller is aware of the deficiencies, is unwilling to make these changes prior to the sale and will restrict a sale to "cash only". In many cases this can be a relatively simply fix item but if the property has been determined "unlivable" at the time of the inspection and will be in that condition at the time of sale, the loan application will not go through.

Account Closed · Answer

I often do cash offers that wind up being just that, a cash purchase. Last year I made a cash offer on a Fannie REO and later decided to use a private lender. It took a mountain of paperwork to change the contract and to satisfy Fannie Mae. I will try not to do that again! So yes, cash offers are usually all cash deals where the money is wired at closing.

Carla Patterson · Answer

This is good to know.

Chris K. · Answer

In my opinion a cash offer just means that there is no "financing contingency" attached to the offer like you said. I put in a "cash offer" last week that I was indeed going to pull from a credit card or line of credit.

Shuai Zeng · Answer

Also, you be surprise at how many people have the cash in their bank sitting around.

Shuai Zeng · Answer

It is what it Is. Cash is Cash. Cash offer is having the money in your bank, wire to title company within the time frame and close it. Cash offer usually close as soon as 3 days, or can be same day too if everything is ready. Finance take 2 week or longer usually. So cash is cash.

What does a "cash offer" really mean?

What does a "cash offer" really mean?

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