I'm under the impression that 'cash offer' just means that whoever is buying has already secured their financing. That means there's almost no risk of the deal falling through and the sale can go from contingent to pending immediately. This is better for the buyer because they sell faster. Senior software eng at microsoft can pull this off no problem (no one is buying a house with cash in their bank, not even rich people).
It means that they aren't using a mortgage to buy it. If there's a mortgage involved, then the offer becomes contingent on the bank's due diligence which can cause the deal to fall through in a variety of ways.
For example: the bank will only loan you money up to the appraised value of the home, which is done after the deal is signed (banks won't send an appraiser to every house you make an offer on). If the appraiser says the house is worth 500K and you bid 800K, you need to find 300K some other way (usually cash) or the deal falls through.
At least in the SF market what matters is a financing contingency, not all cash vs mortgage. As long as you go through underwriting first and get full approval (not pre-approval) an offer with a mortgage and no financing contingency is 99% as good as an all-cash offer. Sellers are not impressed by cash offers anymore unless they're the high bidder... in which case it is the high offer not the cash nature that matters.
And lenders that work in SF understand how this works and indeed can go through full underwriting without a property having been selected. Appraisal is the only thing that might matter which is why it is a good idea to hold back some cash.
While it is true cash offers in the strict sense mean real cash, it may also mean no-contingency offers. You can go through mortgage underwriting first and commit to pay the gap between appraised value and deal value, and can make a no-contingency offer with minimum risk. Or, if you are willing to lose your deposit (usually 3-5%) you can also make a no-contingency offer to be more attractive.
> You can go through mortgage underwriting first and commit to pay the gap between appraised value and deal value, and can make a no-contingency offer with minimum risk.
Of course, but unless the amount you commit to bridge is unbounded, you're still contingent in appraisal price. And if you did commit to that, you're just making a cash offer with extra steps.
Deposits in my experience are token (around 2%). And usually sellers will verify that you have the cash on hand for no-contingency offers, since 2% is not worth waiting and then redoing the house selling process.
> no one is buying a house with cash in their bank, not even rich people
That's how I bought my house, and I earn less as a solopreneur than many FAANG employees in this community. My "cash offer" came with the standard proof of funds: a piece of paper the local Wells Fargo branch printed for me on their letterhead that said I have an $X balance as of that date, where $X was greater than the price I was offering for the house. I walked into the same branch and wired that cash to an escrow company a few days before closing.
No, cash offer means actually pay it cash. If there's any kind of financing involved, the bank will need to approve the purchase, slowing down the process, which is what a cash offer bypasses.
> no one is buying a house with cash in their bank, not even rich people
They most certainly are. Tons of real estate sales here (Silicon Valley) are all-cash because the other people making offers are also all-cash, so the only way to make a competitive offer is if it is all-cash.
So regular people who need a mortgage are completely shut out of the market.
As I noted above this is not really true anymore. My agent told me flat out that sellers (read: seller's agents) are not impressed with all-cash offers anymore. As long as you make a no-contingencies offer that's plenty good enough. They might ask if you have a 5-10% reserve just in case the appraisal comes in a bit low but in the three offers we made that never came up, even against other buyers offering all cash.
Getting a mortgage approved was also easier than I expected; when you move into Jumbo territory and have more than 20% cash to put down the bank seems to assume if you were industrious enough, lucky enough, or connected enough to come up with $500k, $1m, or whatever cash then you're probably good for the loan.
They also counted unvested RSUs as assets at a slight discount to the average stock price (I think it was the previous 90 day average?).
> If there's any kind of financing involved, the bank will need to approve the purchase, slowing down the process, which is what a cash offer bypasses.
Correct. But the point was that if you're getting financing from an institution, there is no such thing as secured, before they evalute the house and the offer.
It means they have cash in a bank account ready to go. Maybe they took out a loan against other assets to obtain the cash, but a "cash offer" is literally the person is handing over a cashier's check at closing.
This means there is 0% chance of the deal falling through. Not almost no risk, none at all. Failure to follow through with the deal would be breach of contract and the buyer is liable for damages, up-to-and-including, being forced to hand over the money for the house.
Your impression is wrong. "Cash offer" means there is no 3rd party loan involved. Obviously, if someone's aunt is lending the buyer money, nobody is going to catch that. But "cash offer" absolutely does not mean "secured financing".
