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My partner and I are looking at a house in an area that would be interesting to us. It's a fixer-upper that would require quite a bit of work on the inside. She's previously owned a house and personally done renovations of that sort; I have not.

The interesting wrinkle here is that the seller requires a cash offer only. Reading up online about what that means, all the sites I find speak of that case in terms of an option that a buyer might put forth, that is somewhat less common (maybe a quarter of all sales), in order to stand out as a more attractive offer. This situation is the reverse: why would a seller require a cash offer? Is such a requirement fairly common, or a red flag?

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    A seller requiring a cash offer is not the reverse situation of a buyer offering cash; it is an extension of that situation. If you think about why a buyer disclosing to the seller that he is paying cash makes the offer more attractive, then you might see why a seller might want all the offers to be like that. Oct 13 at 16:21
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    You did not put a country tag so I am going for my own. In France this would be completely illegal (to be precise: you simply cannot buy a house without going to a notary, and then the payment must be done through a wire transfer to the notary account (which in turn is handled by the state (Caisse des Dépôts))).
    – WoJ
    Oct 14 at 13:52
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    @WoJ I think you've misunderstood what a "cash offer" means in this context. Nobody's turning up with a suitcase full of cash to do an underhand deal - it's simply that they have the money already available in a form convertible to cash, so don't need to rely on external finance or selling their own property to fund it. One situation that can be common in the UK is to have a long chain of property transactions where each is relying on the sale of their current property to purchase the next one. A "cash buyer" (or someone with a pre-approved mortgage) is required to get everyone moving.
    – Steve
    Oct 14 at 14:01
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    @Steve: ahhhh, thank you for the clarification. Oh yes, this certainly helps - though specifically in France you may be legally restrained from discriminating on that basis, the informal checks by intermediates are common ("this buyer has money to buy right away without waiting for the mortgage answer")
    – WoJ
    Oct 14 at 15:42
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This situation is the reverse: why would a seller require a cash offer? Is such a requirement fairly common, or a red flag?

I can think of several reasons they could only be interested in cash offers.

  • They want to sell/close quickly.
  • They've been burned in the past when selling to someone using financing that fell through, and therefore will never do it again (statistics be damned).
  • The house might not qualify for financing due to unpermitted improvements or being uninhabitable.

It would only be a concern to me if they were also insisting that inspections be skipped. The only case in which I'd buy a home without an inspection is if I were planning to scrape/rebuild, and in that case there is other due-diligence to be done.

Ideally you could find out what the seller's reason is, if it's just fear about the deal falling through then perhaps you could convince them with a lender pre-qualification or more earnest money.

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    More on the third reason - you could offer to buy with an FHA rehab loan. "If your renovation is extensive and you cannot live in the home during construction, you may be able to finance up to six months of mortgage payments during renovations if the home is deemed uninhabitable by the HUD Consultant." homebridge.com/renovation-lending/fha-203k-loan Oct 13 at 15:30
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    Another option: The local real estate market is completely insane - even if you put "cash offers only, no inspections allowed, etc." in the ad, you will still get a ton of offers well above asking, so you might as well do so. Portions of California are like this, particularly in the Bay Area.
    – Kevin
    Oct 13 at 22:10
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    @Kevin Good point, initially I had noted that this is far more likely in hot markets but scrapped it since it's not too uncommon in any market. This tendency in hot markets seems foolish to me, I'd rather entertain more offers than fewer. People facing a sea of 'cash offers only' that have to finance will have to price up to be competitive, so it's a losing proposition for sellers to limit their offers unless they have timing constraints.
    – Hart CO
    Oct 13 at 23:17
  • The house might not qualify for financing even without unpermitted improvements or being uninhabitable. If Fannie May/Freddie Mac won't touch it due to some government regulation, most banks won't either.
    – D M
    Oct 15 at 9:20
  • Another reason for not being able to get finance is that it might be uninsurable, e.g. being next to a river or on a cliff or other more prosaic reasons.
    – Stuart F
    Oct 16 at 12:02
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They want a cash offer because they don't want to wait for an appraisal for the lender. They also don't want to wait for the loan approval process.

It might be a red flag. Especially if you also skip the home inspection.

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    except for earlier this year, when in some parts of the housing market it became completely standard (and crazy) that only offers with no contingencies, and thousands above asking price were getting accepted.
    – Michael
    Oct 14 at 16:10
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Mainly they just don't want to get into contract with someone who may fail to get a loan, and therefore not be able to close.

This is partly about you, but may also be partly about their house: some houses are hard to finance because they are in poor condition, and the seller may know this. Not necessarily a 'red flag' - it might just be that the seller is being up-front and realistic. They may have accordingly priced the house lower to account for its poor condition, but know that it still will be hard to finance and are gearing the sale towards a cash purchase, an investor, and/or a flipper.

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  • Especially FHA; IIRC they require major findings from the inspection to be completed before the sale. Oct 12 at 23:51
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    When I sold my last home, the buyer's offer was contingent on the sale of their home which meant not only did I need the buyer to get their loan approved, I needed their buyer to have their loan approved. It's was super nerve-wracking and I missed the date on the contract of the home I was purchasing. Luckily my seller gave us a break. Cash offers can simplify things greatly.
    – JimmyJames
    Oct 14 at 14:40
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It's a fixer-upper that would require quite a bit of work on the inside.

There's your answer. They want cash offers only because they know most banks would never agree to finance the property in its current condition.

Think about how a mortgage works: the bank puts up their money now for you to buy a property. In turn, you promise to pay them back later. If you become unable to pay them back, the bank's only way to recoup the money they gave you is to sell the property through foreclosure. If they can't sell it for at least as much as your outstanding debt, they lose money.

So, when a buyer makes a purchase offer backed by a bank loan, an appraisal is usually required to complete the loan. An appraisal is conducted by a certified professional to confirm that the property's market value is actually worth what you're offering. This helps the bank understand what kind of risk they are assuming by lending you money.

Therefore, it becomes a risk calculation. Most banks aren't in the business of rehabbing homes, or even selling them at all. If a property is in rough shape, they won't finance it, because it would be too hard to recover losses in the event you default on the loan. If you're asking for a $300,000 loan on a property only worth $100,000, the risk is just too big. The bank won't give you a loan.

Real estate transactions can take a month or more. If a seller accepts a bank-financed offer, the property is off the market while the deal is in process. During that period, the seller is still responsible for all the expenses of the property - mortgage, taxes, utilities, etc. They also can't accept another offer. If the appraisal comes in too low, there's a good chance the whole transaction could fall through. If that happens, the seller has wasted time and money, and also has to start the whole process over again.

In very competitive markets, it's common for homes, even ones in uninhabitable condition, to sell for above market price. That's where the cash offers come in. With a cash offer, there's no appraisal and no bank. If both parties agree to the price, nothing more is required. So, a cash offer gives the seller assurance of a fast transaction.

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    Sounds like an appraisal helps not only the bank, but also the buyer?
    – gerrit
    Oct 14 at 7:21
  • @gerrit in my experience, it depends. If the appraiser doesn't do their job well, and undervalues a property, they can ruin the buyer's chances. Oct 15 at 17:50
  • The buyer should still be advised to have the home inspected by a professional. There's stuff you can fix, and stuff you can't, or which could cost a LOT more than expected. And that stuff is usually not visible for the unexperienced buyer.
    – jcaron
    Oct 16 at 12:27
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    @jcaron agreed. I'd never skip an inspection. Oct 17 at 16:19
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In addition to the information provided in the other answers, I'd add some other reasons.

Another factor is that you can list with a deadbeat realtor who doesn't show your property much. Then, you're tied to a realty agreement and stuck in limbo.

If you sell for cash, you eliminate the realtor's commission. I've sold a few homes for cash and with no realty cut and therefore I've been able to yield more on price, enabling faster sale.

I had one home that I listed for cash and a realtor had a buyer interested in that neighborhood and my house. They added the realtor's 3% commission to my price and it was done in less than 3 weeks.

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    Wouldn't this be more of a "For sale by owner" situation rather than a "Cash only" situation? If you list with a Realtor, isn't the commission an obligation, regardless of how the buyer pays? Oct 13 at 16:45
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    Yes, "selling for cash" and "realtor commission" are completely unrelated. Oct 13 at 18:10
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    Yes, this was a "For sale by owner" but a realtor came along with a motivated buyer and offered my price plus 3% for the house. I signed no realty contract. Two plus weeks later I received a check for my asking price at closing (obviously less minor fees, etc.). I have no clue if the buyer paid cash or had pre-approval for financing. You can parse this however you like but to me, it was effectively a cash deal. If that doesn't live up to the meaning of "Cash only" then I accept your definition. Oct 13 at 18:25
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    @BobBaerker your sale was both "For Sale By Owner" and "Cash" but both are unrelated but one does not imply the other.
    – emory
    Oct 14 at 0:36

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