How to Evaluate a Cash Offer on Your Home

How to Evaluate a Cash Offer on Your Home

Selling your house in cash can be a wise move, both financially and practically. You’ll get an immediate injection of cash, you can finalize the sale quickly, and you can use the money for anything you need, whether that’s paying off a debt or investing in something new.

However, not all cash offers are worth accepting. How are you supposed to evaluate a cash offer on your home? And under what conditions should you take one?

Getting a Cash Offer

There are many possible ways to attract a cash offer. One option is to simply list your home for sale and wait for buyers to make bids. If this is a particularly competitive time, buyers may compete with each other to make more attractive offers, ultimately offering all cash as an incentive to the seller. But there’s really no guarantee that you’re going to get a cash offer this way.

Instead, it’s usually better to work with investors and organizations that are already interested in buying homes in cash – like Light Street Residential. While each entity will have a slightly different process, most of the time you can count the same series of steps; you’ll give some information about your property, wait a few minutes or a couple of days, then receive a written cash offer for the property. If you choose to accept this offer, you can close the deal in a matter of days, surrender ownership of the property, and get the money deposited into your bank account.

Naturally, some homes will receive better cash offers than others. Houses in high-demand areas, houses in good condition, and bigger, more luxurious houses tend to attract better offers than their counterparts. Keep this in mind when shopping around for a cash offer.

The Advantages of a Cash Offer

Cash offers are advantageous over other offers for several reasons:

  • Faster closing. Some sellers appreciate the faster close. Because you won’t be going through a bank, you’ll have fewer steps to follow during the closing process. Cash offers can sometimes be completed in a matter of days.
  • Fewer risks. For sellers, there are fewer risks with a cash offer. If you accept a conventional offer, your buyer will need to be approved for a loan before the transaction can be finalized. If the lender finds any reason to deny the loan, it could prematurely end the transaction and force you to relist the house for sale. This isn’t a problem for a cash offer.
  • No appraisal. With a conventional loan, banks typically require an appraisal to make sure the home is worth what the buyer has offered. Again, this is not a requirement for cash offers.
  • (Possibly) no inspection. Not all cash offers waive the traditional home inspection when an offer is accepted, but most cash offers are designed to expedite the buying process. Accordingly, the people making the offer are likely to waive the inspection.
  • Less paperwork. Generally, selling a house with a cash offer requires far less paperwork than selling it to someone using a loan.

All other factors being equal, a cash offer is strictly superior to a loan-based offer.

Terms and Conditions of a Cash Offer

When evaluating a cash offer, you should also keep the terms and conditions in mind. For example, some cash offers still have a contingency for a home inspection, while others intend to buy the house as is.

If you accept the offer, what process will you follow to receive the money? How quickly will you receive the money? Do you have any recourse if the deal falls through? Is there any room for negotiation?

Be sure to review the terms of this deal very carefully.

The 70 Percent Rule

House flippers and other cash buyers often follow the “70 percent rule.” That means they attempt to secure a price that’s 70 percent of the fair market value of a house, accounting for any expenses they estimate. This is a way to mitigate risk and ensure that the transaction is worth making.

As an example, if you have a $210,000 house that needs $10,000 of repairs, an investor may offer you $140,000 for the house, all in cash, with the house as is.

This is a great benchmark that you can use to examine the fairness of the offer you received. If you’re at or above that 70 percent mark, you can definitely consider the offer to be reasonable.

Comparing Multiple Offers

It’s also in your best interest to receive multiple cash offers, if possible. Reach out to multiple investors, house flippers, and other real estate professionals to see if anyone is willing to pay more than the amount on your current offer. Make sure you compare these offers apples to apples to determine which offer is “best.”

Other Factors to Consider

These are some additional factors you should keep in mind when evaluating a cash offer on your house:

  • Your financial needs. Are you in desperate need of cash? If so, any offer is better than no offer.
  • Your practical needs. Do you need to close this deal quickly? If so, a fast-closing, yet lower offer may be better for you than a slow-closing, yet higher offer.
  • The housing market. What are the current conditions of the housing market? When there’s more demand for housing, you should push for a higher offer. When there’s less demand, you may have to temper your expectations.
  • The condition of your home. Remember cash offers are often for your house “as is.” If your home is in poor condition, or in need of serious repairs, your cash offers will be lower.
  • Other options available to you. Could you sell the house normally? Or rent it to a tenant? Cash offers may not be your only option.

The first step to evaluating a cash offer is getting a cash offer. And the fastest way to get a cash offer on your home is through our Light Street Residential website. All we need is a few pieces of information on your home – so get started today!

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