Quick Answer: “It Depends ” But Usually Less Than Buyers Think”

“At the closing table, the Seller will walk away with a check ” and whether the money comes from the Buyer or the lender doesn’t matter.”

—”Do Home Buyers Who Pay Cash Get a Discount?”; The Wall Street Journal.

The answer to the question, “how much of a discount should a Seller give/Buyer expect for a cash deal?” depends mainly on two things, and varies a lot more than you might expect from one deal to another.

The two variables: 1) the attributes of the home in question (condition, price point, etc.); and 2) the Seller’s patience (or lack thereof).

Homes in Disrepair

The big variable is usually the condition of the house.

At one end of the continuum, there are homes without working heat or plumbing that no lender will give a mortgage on, period.

In that situation, a cash offer is the difference between selling or not ” and the discount is BIG.

Appraising Appraisal Risk

Assuming the home is in good repair, though, the question becomes, “how likely is the home to appraise?”

No appraisal, no loan ” and no loan, no deal . . . at least not at the agreed-upon price.

The risk of non-appraisal increases the more the home’s sales price sticks out above the Comp’s ” or there ARE no Comp’s.

So, when a home sells for way above list in multiple offers, the value of a cash offer is higher.

Similarly, when a home is sufficiently unique, or at a (high enough) price point where there are no recent deals to price off of, the Comp’s become trickier, and the risk of the home not appraising increases as well.

While there are ways for Sellers to reduce the risk in a financed deal ” like requiring a higher down payment from the Buyer ” a cash deal represents zero financing risk.

Advantage (again): cash buyer.

Time Value of Money

Of course, even where there is miniscule appraisal risk, getting a mortgage takes time.

Allowing for the appraisal, underwriting review, etc. is usually a 3-4 week process.

cash 3With interest rates essentially zero (at least on short-term money), it’s hard to argue that there’s much discount waiting 30 days to get your money (Mafia loans aside).

However, if the Seller is in dire financial straits and/or facing a looming deadline (Mafia loan??), I suppose getting the money instantly can be (very) attractive.

Alternatively, I can imagine situations (estate sale, job transfer, etc.) where it’s important that the deal be closed in 2019, not 2020.

Bottom line: there are a couple, atypical scenarios where a cash deal is worth a 30% — 40% discount (I suppose infinite, if the deal can’t be financed).

But in the usual case, I’d estimate the discount for a cash deal is less than 5%.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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