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I understand that it is common to get lower than the asking price when offering cash for home purchase, but I am unclear how much a discount I should look for. Also, I am wondering to what extent it mattters how much the house costs. For example, will the discount be relatively the same for a $500,000 house versus a $1 million house, or will people selling higher priced houses not care that I am paying the full amount without a mortgage?

One way to answer this question would be to find a study that compared mortgage sales versus cash sales at various price levels in the United States.

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    I think it's common to get lower than asking price in general, and have not seen explicit references to the idea that you'd get a discount for cash. The reasoning for this in my opinion is that to the seller, they're getting paid either way: Be it from you or the bank. The only way it could benefit them to receive cash would be not having to wait for the loan process to go through, right? – schizoid04 Jun 6 '17 at 16:43
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    @schizoid04 Yes, the benefit of receiving cash is the elimination of the loan process. So the value would likely be minimal, and also highly personal to the seller. For a home with an offer of $1,000,050 through a loan vs a different offer of $1M in cash, probably the seller would just take the $1M cash. Beyond that point, who knows. Sometimes people even go with lower bids because they like the family more; doesn't mean you should try to invite yourself to their barbeque before making an offer. – Grade 'Eh' Bacon Jun 6 '17 at 16:56
  • Doesn't a all cash offer remove the need for a inspection because there isn't a bank pushing for it? – Phil Jun 6 '17 at 21:13
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    @Phil Yeah, but most people will want an inspection even on a cash offer. – Hart CO Jun 7 '17 at 0:38
  • Let's not forget that behind a non-bank owned property is just a human being. You could offer $600k for a million dollar house and get it if the seller deems it fit. There's no unspoken rule about discounts for cash offers that property owners just know about. It has more to do with the financial situation of the seller, how long it's been on the market, and the psychological appeal, or realistic value of your offer. Insult them and they may not take your offer at 10% over asking price. (a friend of ours bought a 650k house for 75k just by asking. it was on the market for a decade) – Kai Qing Jun 6 at 23:30
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First, I assume you understand that 'Cash Offer' doesn't mean you really show up with cash (in a duffel bag...), but is an expression that designates that you don't need a mortgage approval, but have the money in your accounts.

The advantages for the seller are

  1. Less turn-around time - if you have an agreement, you can do the deal an hour later (or whenever you get a Title Company to handle it). For a seller that is in a hurry, this could be very valuable; for someone who has all the time in the world, it is meaningless.
  2. Less risk of 'falling through'. Not only can the buyer's mortgage approval fail, if it takes a week for the bank to approve the buyer's mortgages, he could also change his mind - because he saw a house he likes better, or he got second thoughts. Again, it depends heavily on the seller's priorities - if he has time, he won't care much and wait for the next offer.

With both cases depending on the seller's situation, there can't be a generic answer, and the 'discount' will be all over the place between zero and several percent.

  • Although showing up with a million dollars in a duffel bag can be fun. And watching your bank panic when you tell them you want to withdraw that much money as cash can be even more fun. – aroth Jun 7 '17 at 14:34
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    @aroth I doubt the bank will panic at all. It might be hard for the clerk to keep their laughter down while they explain to you how such transactions are carried out, that's all. – Dmitry Grigoryev Jun 7 '17 at 15:37
  • @aroth Generally if have to make larger cash withdrawals you have to give your bank advance warning so they have the cash ready. As I understand for insurance reasons banks can't just have even tens of thousands of dollars/euro lying around. – Voo Jun 7 '17 at 15:45
  • @aroth A cashier's check would make a lot more sense. – tcrosley Jun 7 '17 at 16:01
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    @tcrosley Sure, but what's fun and what's sensible are rarely on the same side of the coin. – aroth Jun 8 '17 at 4:59
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I don't have a solid data-backed answer, but this is too lengthy for a comment.

I've read that on average, about 1-2% is what you can get as a cash discount on a home purchase, all else being equal, but no hard data to back that.

In certain situations it makes sense for a cash discount to be much greater than that, for instance, if the seller is in a hurry to close and your cash offer has no inspection clause. Similarly, if a house has been re-listed after a sale fell through you might get a greater cash-discount, or if an owner just over-values the advantages of a cash-offer.

Anecdotally, I had a neighbor take a cash offer 5% below asking and they had multiple offers at asking, they took the cash offer so they could close faster (15 days). Also, I've lost out to a cash offer, also at 5% below asking, and they also had a short-closing period and no-inspection, my offer was over asking on that one, so total cash discount > 5%.

There can be more volatility in the luxury home market, but I wouldn't guess that changes the cash vs financed evaluation much. Would love to see if anyone finds a good source, but even if they do, an average is only so helpful.

  • That is interesting information. I did find one study that found that nationally cash buyers paid -20% less than asking, however, in premium markets like the Bay Area and Los Angeles, there was actually a +8% over asking that cash buyers paid, counterbalanced by -40% discounts in distressed areas. That study did not try to compare to mortgage buyers, however. – Five Bagger Jun 6 '17 at 17:55
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    I thought about how it varies by market too, people with traditional financing almost can't get houses in some markets, 20% would be a shocking average, but that could be counting bank-owned properties/auctions, which would skew the numbers. The 1-2% I've heard was always in context of a standard purchase or short-sale, but I know that bank-owned properties can go for huge discounts under list if they sit on the market for too long. – Hart CO Jun 6 '17 at 18:00
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    "There can be more volatility in the luxury home market" - $1m can get you a not-so-luxurious shack in San Francisco... – Dai Jun 7 '17 at 5:49
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    If a study is finding that cash offers are getting an average 20% discount, I'd want to know what other variables they controlled for. That sounds like the kind of skewed result you would get if there's a systematic difference between the kinds of properties being bought for cash vs. those being bought with mortgages, and it wasn't being controlled for. – Nobody Jun 7 '17 at 12:21
  • @Dai, my aunt and uncle had a home that was not bigger than our $200k home in Arkansas. They were in San Jose, and when they had it appraised, I think it was $1.4 mil or something? Maybe 2,000 sq ft., on possibly 1/4 acre, if that. – Wayne Werner Jun 7 '17 at 13:52

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