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What does "all cash" mean? Surely the buyers never start paying loan payments to the former owners... At least where I live all transactions for houses etc are

What does "all cash" mean? Surely the buyers never start paying loan payments to the former owners... At least where I live all transactions for houses etc are always "all cash", even when the buyers have gotten a loan from the bank... Ie. it doesn't matter to the seller where the money comes from, they get their money as "all cash" either way. Maybe this is some US terminology thing. * Ok, read a little further: "When sellers have a choice, they prefer the sure thing. Unlike cash, financing can fall through, especially in a market with tighter credit. Buyers who turn up with a check rather than a pre-approved loan are more likely to complete the transaction –and sellers know it. To compete, some buyers are simply borrowing cash from friends and family and financing their houses after closing — bout 14 percent of cash buyers in the greater Portland area between 2011 and the end of 2014, in fact, according to RealtyTrac." Well, here if you make a binding offer for a property, you pay 10% upfront to the seller. If you don't complete the transaction you lose that money. And all buyers always have a "pre approved loan" (which is binding from the bank, they can't reneg it).

tsotha 11y ago
>And all buyers always have a "pre approved loan" (which is binding from the bank, they can't reneg it). Yes they can. I've never seen one of those "pre-approved" loans that was actually contractual. All they really mean is, based on the numbers you've provided, the bank thinks you can afford a house that costs X. That's to keep people who don't have enough income from wasting everyone's time. But it doesn't put them on the hook for actually providing the loan.
- imroot 11y ago
  To combat that, some banks are offering "Guaranteed pre-approval," but that's the bank underwriting the loan during your pre-approval paperwork, so that you can close in 72 hours as long as the titles clear.
zaroth 11y ago
When you make an offer, it comes with "earnest money" which is a deposit on the purchase. There are usually some "contingency clauses" which allow the buyer to back out and get their deposit back. Backing out for any other reason means the seller is entitled to keep the deposit. Typically 1 - 3% of the purchase price is included with the initial offer which increases to about 5% by the time you get to "Purchase & Sale". The money is kept in escrow until the deal closes, but it does prove the buyer at least has some cash on hand they are willing to park in a separate account while the deal goes through or falls apart, so the amount of the deposit and the number of contingencies is a signal to the seller of the buyer's seriousness and also gives some assurances that the buyer will make it to closing. Typical contingency clauses include a home inspection revealing substantial unknown issues, an appraisal coming in below the sales price, and a mortgage contingency saying the buyer will make reasonable effort to obtain a mortgage but can back out (and get their deposit back) if they are unable to obtain a mortgage. What the term "all cash offer" means is simply that there is no mortgage contingency in the offer. So if the buyer does need a mortgage to complete the purchase, but they cannot get one, then the seller is entitled to keep the deposit. It is poor terminology because cash has nothing to do with it. The seller gets cash either way, and the buyer may be obtaining financing before closing either way. It simply has to do with the seller's legal right to keep the deposit under the specific case of a buyer failing to obtain financing. Buying without a mortgage contingency isn't really a big deal if you actually know how much money you can afford to borrow, and give yourself enough time to actually close on some financing. Buying without an appraisal is a slightly bigger deal, because the LTV (loan-to-value) ratio of the mortgage is calculated based on the appraised or purchase price, whichever is lower. If it appraises low and you are at the maximum LTV already, you will need to increase the down payment to cover the difference in order to close. Finally, the inspection contingency: Sellers don't want the buyer coming back and saying, "hey I inspected the property and it needs new paint in the 2nd bedrooms closet, we need to reduce the price by $1,000..." so the clause typically says something about "significant undisclosed structural, mechanical, electrical, blah blah". When you see buyers dropping this clause it definitely raises an eyebrow, because, what exactly are you buying if you don't get the chance to even properly have some-one look it over? On the other hand, the typical inspection is made to look "comprehensive" with big long checklists but most of the items are complete nonsense, and no real invasive inspection of the property is typically taking place, so I can see why some people just dispose with the ritual.

tsotha 11y ago

>And all buyers always have a "pre approved loan" (which is binding from the bank, they can't reneg it). Yes they can. I've never seen one of those "pre-approved" loans that was actually contractual. All they really mean is, based on the numbers you've provided, the bank thinks you can afford a house that costs X. That's to keep people who don't have enough income from wasting everyone's time. But it doesn't put them on the hook for actually providing the loan.

imroot 11y ago
To combat that, some banks are offering "Guaranteed pre-approval," but that's the bank underwriting the loan during your pre-approval paperwork, so that you can close in 72 hours as long as the titles clear.

zaroth 11y ago

When you make an offer, it comes with "earnest money" which is a deposit on the purchase. There are usually some "contingency clauses" which allow the buyer to back out and get their deposit back. Backing out for any other reason means the seller is entitled to keep the deposit. Typically 1 - 3% of the purchase price is included with the initial offer which increases to about 5% by the time you get to "Purchase & Sale". The money is kept in escrow until the deal closes, but it does prove the buyer at least has some cash on hand they are willing to park in a separate account while the deal goes through or falls apart, so the amount of the deposit and the number of contingencies is a signal to the seller of the buyer's seriousness and also gives some assurances that the buyer will make it to closing. Typical contingency clauses include a home inspection revealing substantial unknown issues, an appraisal coming in below the sales price, and a mortgage contingency saying the buyer will make reasonable effort to obtain a mortgage but can back out (and get their deposit back) if they are unable to obtain a mortgage. What the term "all cash offer" means is simply that there is no mortgage contingency in the offer. So if the buyer does need a mortgage to complete the purchase, but they cannot get one, then the seller is entitled to keep the deposit. It is poor terminology because cash has nothing to do with it. The seller gets cash either way, and the buyer may be obtaining financing before closing either way. It simply has to do with the seller's legal right to keep the deposit under the specific case of a buyer failing to obtain financing. Buying without a mortgage contingency isn't really a big deal if you actually know how much money you can afford to borrow, and give yourself enough time to actually close on some financing. Buying without an appraisal is a slightly bigger deal, because the LTV (loan-to-value) ratio of the mortgage is calculated based on the appraised or purchase price, whichever is lower. If it appraises low and you are at the maximum LTV already, you will need to increase the down payment to cover the difference in order to close. Finally, the inspection contingency: Sellers don't want the buyer coming back and saying, "hey I inspected the property and it needs new paint in the 2nd bedrooms closet, we need to reduce the price by $1,000..." so the clause typically says something about "significant undisclosed structural, mechanical, electrical, blah blah". When you see buyers dropping this clause it definitely raises an eyebrow, because, what exactly are you buying if you don't get the chance to even properly have some-one look it over? On the other hand, the typical inspection is made to look "comprehensive" with big long checklists but most of the items are complete nonsense, and no real invasive inspection of the property is typically taking place, so I can see why some people just dispose with the ritual.