The Good: The ‘all cash’ buyer has the potential to be the best kind of buyer. Because they don’t need a loan, they are often able to close quickly. The fastest transaction I ever closed was with a cash buyer who performed in 5 days. Not having to wait for a bank to approve funding, which is never a sure thing, always brings the cash buyers to the top of any offer pile.
When I sit down with sellers to review offers and we’ve got only one that is cash, we focus on trying to work with them. The Bad: often cash buyers will write great offers, but sometimes they can try to low ball the sellers. If there are no other offers on a property the sellers might consider countering or accepting a low offer, but if it’s too low I’ve seen sellers not even bother countering to try getting a higher price and just letting the offer expire.
In the low ball scenario the buyers agents will often plead, “Just give us a counter offer.” That’s one way to go if you have no other offers and if the sellers haven’t been gravely offended. However, if there are other offers that are solid but have loans, the low ball cash offer risks getting blown off. The issue with sellers giving a low ball buyer a counter is that the property then becomes tied up until the counter is accepted, expires or is countered again by the buyers. If the sellers get a second counter offer, it may or may not be acceptable. Meanwhile the other buyers who made good offers with loans could go away, and the cash buyer and seller may never come to terms. At that point the seller may have to go back on the market, which is not a desirable outcome.
The Ugly: I have met people who I consider predatory cash buyers. Back when I sold short sales and properties in default, as the market sunk into the Great Recession, it was not unusual for the cash buyers to make low ball offers and try to take advantage of the bank. At the time banks were anticipating market declines, and in the absence of good offers they were accepting low offers from cash buyers. It’s all fine and dandy, until someone gets hurt.
There was one instance where I met a seller in the final phases of default who still had equity in the house. Back in the day that was kind or rare, as most people in default were underwater. She was a hoarder and didn’t want to put the house on the market. I had met a cash buyer who offered to bail out the seller and buy her home. That would enable her to salvage some equity and move forward in her life. I will never forget the transaction because the buyer, who knew everything about the house going in, at the last minute threatened to pull out if we didn’t reduce the price $20,000 for a roof that was obviously shot going into the transaction. We were out of time and the buyer knew it, giving him a wicked chunk of leverage. Foreclosure was literally scheduled for the following week.
With the only choice being reduce the price $20,000, which was a significant chunk of the seller's remaining equity, or let the bank take back the house, she chose to reduce the price for the buyer. I felt so bad for my seller, and I still do today, but at least she was able to salvage some equity. The thing about real estate sales, and life, what goes around comes around. That cash buyer made money flipping that particular house. Later he bought another house to flip and lost everything. Karma is a bitch. So is real estate, sometimes.