We all know the saying, “money talks” but what does it say? With interest rates on mortgages so low, is it a good idea to pay cash for a home? With the criteria for credit worthiness getting stricter by the day, are cash offers more likely to be accepted? And can a buyer with a cash offer expect to get a discount or other considerations thrown in? I decided to explore the popular notion is that cash buyers can expect a discount, and sellers can expect a hassle free quick transaction.
Does it talk in 49120?
To test this notion I looked at the total residential sales of single family homes in the 49120 zip code; in Niles and Brandywine schools priced between $100,000 and $200,000 (slightly above and below average. I chose this market because I felt it gave a large enough sample size, while excluding properties sold at a deep discount, market areas with stagnation, rural or declining areas, in short one of the most stable markets in our territory, with a large enough sample size to analyze.
All the data is courtesy of the South West Michigan Regional Information Center, trendvision and Freedom Realty. In the past year there were 73 total properties sold in the $100,000-$200,000 price range in Niles MI, including only the Niles and Brandywine school district.
Of those 73 sales, 11 sold for cash, 31 sold with FHA, VA, RD and 26 sold with Conventional financing. FHA/ VA/ RD together make up the majority of the financing type with conventional close behind.
Sellers who's buyers secured a mortgage to purchase the home got 93.86% of their asking price, while sellers who sold their homes for cash money got 92.46% of their asking price, for a discount of 1.5% for a cash transaction, and average of $2200 for our data set. A significant discount for buyers who use cash, the sellers do not have to deal with the hassle of the buyers securing a mortgage. Also the seller typically does not pay concessions on a cash sale. While if the buyer is obtaining FHA, RD, MSHDA or other insured mortgage sellers paid an average of $3150 in buyers closing costs. For conventional financing sellers paid an average of $1271 in buyers closing costs. Each transaction is different, and everything is negotiable, but these numbers are the average.
Cash is King
So if this is the case, why are buyers feeling like hot shots, when they present cash offers? and why are sellers so excited to receive them? The average discount sellers are giving for cash offer is so close to the average sellers pay in concessions on deals involving mortgages, there must be something else happening here. It could be just that cash offers are simpler, they offer less hassle and a quicker closing time, and the sellers like that too.