Do cash buyers have leverage when buying a house? Episode #320

Do cash buyers have leverage when purchasing a house

Hello. Welcome to Todd Miller TV. I got another question from Ask the Expert so I’m going to answer this one with a video as well. This actually came from the same person who asked another question. But – so I’m going to answer with the video because I know a lot of you have the same question about cash buyers.

And the question is do cash buyers have more leverage than a financing buyer? And the answer is yes, but maybe not for the reasons some people think. So, when a person gets a loan on house, the seller, they close escrow on it. The seller actually gets whatever the amount was. So let’s say that they own a house free and clear and it’s a $200,000 house. And you have two – then you have a person that goes and gets a loan. They borrow $200,000. And when that person get closed, it’s close of escrow, they get their $200,000 minus whatever cost there were to sell the house, commission, et cetera.

They actually get all the money. There are people out there that think and I don’t know where they get this from, that if the other person gets a loan, they don’t get all the money, they get payments every month. OK? That’s called seller – that’s when the seller is financing the house to you but if they go get a bank loan, the seller gets paid.

I actually have people call me and say, “Hey, why – you take my cash offer, I”m a cash buyer, because you’ll get cash. If you take that financing offer, you’re just going to get payments forever and you don’t want that.” And I’m like, “No, I’m going to get cash at closing. Just because they’re getting a loan, that’s a loan that’s coming in to title. All that money will be there.” So it’s the bank getting the payments not the seller. That’s what seller financing.

So it’s a little misconception but believe – I mean there are people out there that believe that for sure. But as far as leverage, yes and no, and this is why. If a person is going to get a 150 grand for the house and you have a 130 or 140 cash offer, well yes, you may close in two weeks but if that other – if that loan is going to take a month or 45 days, here’s the question, would you wait another 15 or 30 days to get 10,000 more in cash? Would you get 10 grand? Would you wait? Cash buyer or not?

So, you don’t have that much leverage. I mean it’s not like – and I see this all the time, we’ll get an offer under contract with cash buyer. We’ll find out after it close that someone got a loan and they’ll freak out and call us going, “I can’t believe you turned down our cash buyer offer. We offered cash. That was cash. We could close in two weeks.”

And we’ll say, “Yeah, but the other people offered more.” “Yeah, but …” And they’ll reiterate, “But we were cash buyers. This is cash.” Well, whatever. I mean just because a buyer has cash doesn’t mean the seller needs to take a discount.

Now, where it’s going to matter is if you have equal offers. You have an offer for 150 financing. You have an offer for 150 cash. Now, you have leverage. That’s your leverage. You don’t have leverage because I mean you’re not always going to get accepted just because you have cash. That doesn’t – it’s a myth out there.

Here’s the other thing. In Vegas, over half of our properties for cash offers anyway. So everyone has the same leverage. So you don’t really have that much leverage. Only if people – if it’s overpriced and it’s not going to appraise like if the house is only worth 150 and you have offers for 160, 170, 180 financing and you’re saying there’s no way those will ever happen and then somebody offers 160 cash even though it’s the lowest of all the offers, a seller might accept that because they might say, “Well, none of these offers – other offers are going to get accepted because they’re too much. They’ll never appraise. I’ll just take the 160 cash because that’s probably the best overall deal.”

But that’s only if they can’t – they couldn’t get the 180. Meaning if the 180 or 170 or whatever wouldn’t actually happen, if they didn’t believe it would happen. So there is a little leverage in cash. Not as much as most people think. It’s certainly the people who are lowball in cash and I just – I have a lowball cash offer in front of me on the desk with a house I have, six offers now on and it’s through the worse [0:04:13] [Phonetic] and they’re not even going to look at it.

So anyway, thought I’d share that with you about cash buyers. That is my update and hope to see you on another video. Thanks.