It is tough to compete in a market with so many buyers as it is, but when you are up against other buyers who have cash, it is even tougher. And if you have a house to sell before you can buy, or need the cash from the sale of the home to obtain the cash you need, it can seem near impossible to compete against them.
So the prospect of putting yourself in the position to be one of those cash buyers can sound super appealing…
The good news is, it is possible. There are companies who will offer you a short-term loan to put you in the position to make all-cash offers. The not-so-good news is that it might not be the best idea for you.
As you would expect, “there’s no such thing as a free lunch,” and these companies expect to make money, and in itself there is nothing wrong with that. They are offering a service, and they deserve to make a profit. But the question is: How much will it cost you? (Spoiler alert: Some of the “costs” are hard to quantify.)
The basic cost is that you will pay a higher rate for the short term loan. That is not a big deal if it is truly short-term and you pay back the loan in full quickly. You are just paying a premium for a short-term float of money. In that sense, just make sure you know how much higher the rate is going to be than a typical mortgage would be for you.
But they also may be looking to make money if you end up sticking with them for a long-term loan on your house, thus allowing them to make money on an ongoing basis in interest payments. Again, nothing wrong with that, but you need to make sure up front that the long-term rate will be competitive with other loans you could have gotten instead.
Here is where it gets more complicated, and the buyer may overlook these costs when they are enticed and focused on the benefits and hopes an all-cash offer would afford them:
Non-refundable deposits and fees. These could be between 1% to 5% of the purchase price of the home you are considering. According to this realtor.com article, a company such as Better will keep your 5% deposit of the purchase price if the deal falls apart for any reason. That could be a hefty chunk of change for them to keep even if you didn’t end up buying a house. Other companies will charge a “convenience” fee between 1-3% of the purchase price if your offer is accepted. But again, that can get steep depending upon the price range you are buying in.
You have to use them as your agent. Some companies also require that you work with one of their agents on the sale and/or purchase of your home. This way they also get the commission for the sale of the purchase of the house, along with any interest and fees they charge. This may not sound awful, since they are costs of buying and selling a house anyway, but not being able to choose your own representation can cost you in many subtle ways. Their agent may not be the best-skilled agent you could have hired, and potentially may not be as objective or have your entire best interest at heart.
While the ability to become an all-cash buyer may be enticing, make sure you analyze and assess the entire cost to you before signing on the dotted line.
Speak with a real estate agent you trust before agreeing to an all-cash buyer program. Listen to his or her objective advice on whether or not it is even necessary in your situation, and if it is, whether it is worth the risk you would be taking on.
Keep in mind that they also cite in the article that 23% of recent sales were all-cash offers. While that is a high percentage, it is not every single house selling with an all-cash offer. Sure, being an all-cash buyer may help, but it is not absolutely necessary in every single situation. You are probably better off making as strong an offer as you can — especially if you have an agent who is good at illustrating how and why you are the best buyer for the property, even if you are not an all-cash buyer.