When is a cash buyer not a cash buyer?

If you’re a seller, you probably think a cash buyer is the best buyer. So pay special attention to what I’m about to tell you, because not all cash buyers are created equal.

In fact, as far as I’m concerned there are 3 types of cash buyers:

  1. Cash buyers with real money
  2. Cash buyers who use financing
  3. Cash buyers who can’t (or won’t) prove it

The first kind of cash buyer is the best kind. They easily and readily provide evidence that they are financially capable of purchasing the home. This is the kind of cash buyer everyone wants to have, because they can close the sale quick and their purchase isn’t going to go sideways over appraised value concerns. A cash buyer with real money is the buyer you want.

The second kind of cash buyer is a little confusing, and you might be asking yourself, “If they’re a cash buyer, why are they using financing?”

It’s because in real estate, a cash offer doesn’t mean the buyer is coming to the closing with briefcases full of $100 dollar bills. It means that the buyer is making their offer without any contingency for mortgage or lending approval.

It means the buyer is basically willing to lose their earnest money deposit if they can’t get financed. And that’s great for you, as long as you aren’t counting on the sale closing in order to make your own move.

There are several different reasons why a cash buyer might not be paying cash, and understanding them might be the difference between a smooth transaction and a possible nightmare.

For example, because interest rates are so low right now many of the wealthiest people are buying with mortgages and retaining their cash in other investments. They can prove they have access to the money but prefer to take a loan. Their approvals usually happen fairly quickly and value issues are of little concern.

But sometimes an offer presented as a cash offer is only to strengthen the “look” of the offer; if there are multiple offers for a particular property, the offer that’s not contingent upon financing would seem to be the better offer if all else is equal.

Some buyers (especially investors) have access to lines of credit or wealthy backers to fund their real estate activities. These buyers typically borrow funds without the need for appraisals, but they are still relying on a third-party to provide the cash needed to close which could pose risk to your sale actually happening.

The third kind of cash buyer is my favorite. Because they’re not buyers at all.

These buyers, when asked to prove they have funds available to make a purchase, tend to give one of a dozen different reasons why they can’t provide the evidence, like:

“The bank’s online access has been down for a few days.”

“I throw away my bank statements each month.”

“My guy at Fidelity is out of town.”

“I’m transferring money from a few accounts and can’t show it to you until it’s all in one place.”

“I’m getting a huge settlement from a lawsuit.”

“I’m getting the money from the sale of my current home”

“My dad is paying for it and he’s currently on a 21-day cruise”

“My money is overseas and is being transferred later in the month.”

These are the buyers that are out there just wasting everyone’s time. Their offers shouldn’t be taken seriously. In fact, they shouldn’t be considered at all.

But that doesn’t stop agents from believing in them and it doesn’t stop sellers from negotiating with them.

The important thing is to know who you are dealing with and understand that all cash offers are not the same.

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