Cash Buyers and Short Sales
Recently, an investor that wants to make offers on short sales contacted me. He has been working with some local agents and is frustrated because the short sales are taking eight to twelve weeks to get approved. Also, in some cases, his offers have not been accepted. He expressed dismay that his cash offers (sometimes above list price) were not even being submitted to the short sale lender. Because he was paying cash as opposed to obtaining a mortgage, he felt that the lenders should move more quickly.
Now and again, I speak with an investor buyer that feels that “cash is king.” And, short sale sellers should recognize that there are many advantages to accepting a cash offer on their property. However, when writing a cash offer on a short sale, the buyer needs to understand that there are a number of reasons why cash may not always be king.
Benefits of Cash Offers on Short Sales
In a short sale transaction, there are some significant benefits to cash offers. For one, the cash buyer does not have to obtain a mortgage loan. This very fact can speed up the closing of the transaction. Additionally, a cash buyer may have a little bit of wiggle room when and if the bank does not approve funds for certain items required for the short sale closing. For example, if there is overdue HOA or a required termite report, the cash buyer might be able to contribute some funds to cover those fees. Lastly, in a pinch and if the foreclosure auction is imminent, the cash buyer can close more quickly. That last fact is often seen as a positive by the short sale negotiators and processors at the bank.
Disadvantages of Cash Offers on Short Sales
Often times cash buyers (by the very nature that they are cash buyers) are more fluid. Since these buyers do not require a loan, they can continue to look at properties and shop around. Additionally, many cash buyers are investors that are looking for an investment with a strong return. So, if the bank counters their offer at a higher price, they might move on to another investment. Lastly, as an investor buyer, the cash buyer is not emotionally attached to the property in the way a first time homebuyer might be. For example, a first time homebuyer might want a specific school district or neighborhood, whereas the investor is often more focused on the financial bottom line.
Are short sale processing times faster for cash offers?
With respect to short sale negotiations, few and far between are the times when bank employees will speed up their corporate time frames (or consider cash as king) and take a lesser dollar amount because a cash buyer has submitted an offer. If an investor, such as Fannie Mae or Freddie Mac, has done their due diligence and decided upon a minimum net amount, the very fact that the offer is cash will not usually coerce the lender into accepting something less than a pre-determined net. Additionally, it is not often that a bank will speed things up when a cash offer is on the table.
I’ve gotten a few short sales with cash offers approved in record time—several in under a week. However, in all of those cases, I already had a fully-approved package in the hands of a higher-level short sale executive who was just waiting for me to submit either a new offer or an offer that already met some pre-determined or pre-approved terms. So, in those cases, it might not have been the cash that was king. I could also chalk it up to dumb luck or my excellent short sale processing skills.
There’s a lot for short sale sellers to consider when looking at offers. And, sellers may find that depending upon their needs, cash may not always be king.