Q: I plan on accepting an all-cash offer on the sale of my house. Is a certified bank check really the most secure means of payment other than a bag full of cash?
Seriously, you’ve posed an interesting question, and our answer might surprise you. Let’s start with an explanation of what makes an offer “all cash.”
Sellers want to know that when they sign a contract with a buyer, the buyer will close on the purchase of the home. Buyers use the phrase “all-cash offer” to indicate they don’t need to borrow money from a lender to close on the purchase. (It doesn’t mean the buyer is coming with a bag of cash or even a bank certified check.)
Most borrowers go to a bank, mortgage banker or mortgage broker, apply for a loan to cover a portion of the purchase price, and then pay the rest (minus the good faith deposit) that’s owed with a wire transfer. Typically, the lender supplies most of the funds for the purchase of the home.
But because most buyers use lender financing, most purchase agreements include a financing contingency. This contingency states that if the buyer fails to get financing for the purchase of the home by a certain date, the buyer can cancel the deal, and the seller will return any money the buyer put down.
Well, right now, we’re in one of the hottest sellers markets we’ve seen in 25-plus years. There are many more buyers than there are properties for sale. Most homes are being sold in bidding wars, and buyers are doing what they can to make their offers stand out in what is often a sea of bids. So, they tell the sellers they will buy in an “all-cash” transaction. This means the buyer is willing to walk away from the deal, including any cash put down for the good faith deposit, if the deal doesn’t go through for some reason, like they can’t get financing.
In some real estate markets, listing agents will ask the buyer to provide proof of funds that they can close on the purchase with the cash the buyers have in the bank. These agents are trying to make sure the buyers will, in fact, close on the home and have the cash to do it.
But you need to remember most buyers don’t have that much cash to close without a lender. In the end, what really matters is how much earnest money the buyer puts down as a show of good faith. If the buyer puts in an all cash offer but only puts down $1,000 in earnest money, the buyer isn’t risking much — and the seller knows that.
But if the buyer puts down $25,000 or $100,000, the seller knows the buyer is serious and is more likely to close. The strongest offer a buyer can make is an all-cash offer with a sizable down payment.
Let’s go back to the mythical bag of cash. Typically, buyers will come to the closing with a bank check or they have already wired funds to the settlement agent or office. Whether they have a bank check or the cash has been wired ahead of time, the settlement agent takes these funds and disburses them to the seller, the attorney (if there is one), and anyone else who needs to get paid from the closing.
As an aside to buyers putting in cash offers, fraud is rampant in the wire transfer world. You must make sure wire transfer information is accurate, because once the funds leave your account, they end up in the recipient’s account. And, if you click on the wrong link, or send the funds to the wrong place, you could lose all of your cash.
Don’t set up a wire transfer without first double checking the account information with the settlement company. If you get an email that purports to be from the settlement or title company, call them directly to make sure you’re getting the right account number. It’s difficult to know how scammers and bad actors are able to send phishing emails to buyers who are within days of a closing, but it’s happening more frequently. Beware of any email you get that purports to give you wire transfer information for your transaction.
To our reader, don’t plan on seeing that bag of cash to the closing. Instead, plan on a wire transfer of the funds and be sure to let the professionals on your team guide you appropriately. At the end of the day, what you want are the title and the keys to your new home, not a conversation with the FBI.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through the website, ThinkGlink.com.
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