Selling question - cash offer (Dallas, Howe: sales, real estate, insurance)

[mangymutt]

A little bit random question for anyone well versed in real estate... we are moving out of state and selling our home in TX. We got our asking price (the realtor we went with actually suggested the highest price of all we interviewed, but they were all within $5,000 of each other as well). There were three offers (all within $1,000) and the one who put it at asking price made a cash offer. Our realtor keeps on stressing that the offer is cash - but we are going through a company relo - so other than showing that they are earnest and that it should be a smoother process... I don't understand what the big deal is to us the seller. Any enlightment? Also, I should mention that the buyer realtor is actually on our realtor's team. They promise arms distance... but I'm a little weary that that is actually happening.

[bobparr]

Most of the real estate deals here are written with a financing contingency and makes the deal a bit more volatile. It states that the buyer will purchase the house contingent on them qualifying for financing. So, even though both the seller and the buyer agree to all terms and sign the contract there is still a possibility that it won't go through if the buyer doesn't qualify. Also, the deal could fall through if for some reason the mortgage company refuses to provide financing.

A cash deal gives you a little more security that the deal will not fall through because it removes the financing contigency and eliminates all of those variables that could cause you problems.

If I were you I would make sure your realtor requires proof of funds from the buyer.

Also, don't be too worried that someone on the same team as your agent brought a buyer. There is nothing really shady about that. After all, they brought you a full price offer. (Something that doesn't always happen around here). Now, if there are really odd terms in your contract that you feel uncomfotable with or they are asking you to do all of the compromising while the buyer does none, you should start to get a little suspicious.

Overall, in my opinion you got a pretty good deal going on.

[socketz]

This is so important with an all cash offer that it bears repeating:

"If I were you I would make sure your realtor requires proof of funds from the buyer."

Personally, I'm confused as to why people would pay cash for a home even if they could afford to, but that's another discussion entirely. I sold a home in CA once where the buyer paid 900K cash!!!

[GoPadge]

To save the finance charges.

Remember by hypothetical $235,000 mortgage scenerio? (235k valued home w/ 4% annual increase in value.)

The grand total of payments with taxes and insurance over 30 years was $905,043.83. If I had the $235K cash, and invested only 75% of the total payment each month ($1500) to a mutual fund making 12%, at the end of the 30 years I'd have a paid for home valued at 762,198.41, and a mutual fund worth $5,242,446.20. Even if I invested poorly and only got 6%, I'd still have the home at $762K and the mutual fund would be worth an additional $1,506,772.56.

[Roma]

GoPadge is right on this. We are cash buyers ourselves. I would do what Bobparr said, have your realtor get proof of funds. It's not hard for them to do that. They can get it in a day or 2 or maybe the realtor already has the proof. Cash buyers just make the transaction run smoother. You do not have to worry about if or not they can get financing.
When you have money you have to put it somewhere. Actually alot of somewheres. And real estate is just one of the many somewheres it goes. Every bodiies finances are different. And every ones investing styles are different. Some prefer different investments then others. Some are great at it and others may not be so lucky. For the majority of Americans Real Estate is their biggest investment.

[socketz]

Your analysis implies that the person paying the home off actually does something with the money saved by not having a mortgage.

You also lose the tax write off provided by the interest and the cash flow provided by the equity from the other home that could be used to invest in a business, Multi-Dwelling unit, land, more agressive investments, etc.

Paying your home off in retirement makes some sense to me (even then, why leave your hiers so much equity), but not during your prime earning years. I know you can argue the numbers with me back and forward and not paying any interest on a loan always looks better on paper when you assume the investment options available to most people.

But........making a payment of say 2k per month to control hundreds of thousands of dollars, provides you with a tremendous amount of financial options (it's the ugly word leverage everyone argues about here). Personally, these options mean more to me than the peace of mind involved with having a home paid off. I work with a couple of guys that paid their homes off and I'm not that envious of either. They seem to live no different than I do except I have more control of larger sums of money because my nut is divided up in many areas.

This goes to the old addage "you can't spend your house". For instance, try getting a home equity line of credit when your unemployed. Even the ones you pre-qual for have 'stipulations' where they get to re verify your employment once you start using a certain amount from the HELOC.

I can show you pretty smart financial people that believe you should never pay your mortgage off beyond 80% LTV.

Finances are like religion though, there is no right/wrong blueprint that works for everyone, so arguing such a topic is a waste.

Just think of what you could create with the 900k paid for the home in Norcal (my example). The opps are endless.

[GoPadge]

Originally Posted by socketz

Your analysis implies that the person paying the home off actually does something with the money saved by not having a mortgage.

You also lose the tax write off provided by the interest and the cash flow provided by the equity from the other home that could be used to invest in a business, Multi-Dwelling unit, land, more agressive investments, etc.

True, but your scenario also implies that the person mortgaging the home actually invests the lump sum. So it's a trade off.

But........making a payment of say 2k per month to control hundreds of thousands of dollars, provides you with a tremendous amount of financial options (it's the ugly word leverage everyone argues about here). Personally, these options mean more to me than the peace of mind involved with having a home paid off. I work with a couple of guys that paid their homes off and I'm not that envious of either. They seem to live no different than I do except I have more control of larger sums of money because my nut is divided up in many areas.

You have a point, I ran the numbers. Option 1. Pay for the home (235K and invest $1500/month* with 12% returns). Option 2. Or mortgage the house and invest the $235K with 12% returns.

Option 1. Yields $5,242,446.20 after 30 years. (plus the value of the home.)
Option 2. Yields $7,940,945.97 after 30 years. ($235K invested at 12% returns $8,448,165.71 - $507,219.74 = $7,940,945.97 plus the value of the home.)

This goes to the old addage "you can't spend your house". For instance, try getting a home equity line of credit when your unemployed. Even the ones you pre-qual for have 'stipulations' where they get to re verify your employment once you start using a certain amount from the HELOC.

True, but if my house is paid for, I can work at domino's and cover my utilities fairly easily. In your scenario you can't stay in your home if you're unemployed. (Well not beyond about 6 months, when the nice sheriff will escort you out.) You could pull from your investments to cover the mortgage.

Finances are like religion though, there is no right/wrong blueprint that works for everyone, so arguing such a topic is a waste.

Just think of what you could create with the 900k paid for the home in Norcal (my example). The opps are endless.

Eh, for me it's about understanding what's important to the individual, and how they want to live their lives. I'm not trying to convert anyone to the "First Church of the Debt Free" or anything...

You offered some good points, and if I found myself a $235K lottery ticket, I'd certainly weigh my options.


* I do need to clarify here, 1500 is not 75% of the TOTAL payment, it's 100% of the payment and interest, or 75% of the total payment plus insurance and taxes.

[kawgpz550]

Well if this helps at all....
We just sold a house. Unfortunately, we were desparate to sell it so we agreed to their 45 day escrow. They made the sale contingent upon the loan etc. However, the woman wasn't happy with the 8% she was getting and wanted 7%. Just yesterday we pulled everything off the table. IT has now been almost 60 days and we were no closer to closing than we were 45 days ago. We actually went really low on the house just because we needed it sold, however, now we have the opportunity to get more from it.
In short, you are MUCH better off selling for CASH! However, IMHO, being that it is cash you should be able to close early. Usually 30day escrow is needed to get a loan squared away and all. Paying cash eliminates that part of it so if everything else works out ok, you should be able to close early or on time!
Good luck!

[momof2dfw]

As explained above the benefits of a cash buyer are tremendous. Another point is that the lender will not require an inspection nor an appraisal - the buyer can do this but if the appraisal comes out lower than the selling price you don't have to worry as long as the buyer still agrees to the sales price in the contract. If the buyer did specify that the final price was contingent upon an appraisal that is another thing but is still fine, you can't blame them afterall they are only looking out for their best interest and do not want to overpay. Being it is a realtor buying the home they are probably already aware that the price is worth it and this should not be an issue. So yes, your realtor is right that this is a BIG DEAL and a cash buyer is something to behold & cherish.

As for paying cash for a home or taking out a mortgage, my parents will be paying cash for their next home purchase. Their current home is paid for and they don't want a montly payment to contend with in their retirement. When we purchased our house we did not pay for the full thing in cash but we did put a LARGE chunk down. This was 5 years ago and when the interest only loans were hot yet the title company told us (my mom - our realtor) that most of the homes being sold that were higher end were being paid for in cash or with large down payments. So not all of the mcmansions around Dallas are heavily mortgaged.