Sellers generally love getting a cash offer, well, as long as it’s not a silly one. And buyers like to make them because they think it will be more attractive to the seller and save them some money on the purchase price of a home, which sometimes it can.
A cash offer means that the buyer has the cash to purchase the property outright without the need to get approval for a loan – it’s a done deal. Or is it?
Sometimes buyers make cash offers for properties on the basis of receiving pre-approval for a loan or because they believe that their loan will easily be approved. But this isn’t making cash offer, it’s taking a gamble. And it’s a gamble that could end up costing both buyer and seller thousands.
Loan approvals are typically subject to conditions, such as a formal valuation/s being conducted on the property being purchased and other properties being used as security (where applicable), and confirmation of your employment and income details. Sometimes the valuations don’t come back at the purchase price or what you thought your existing property was worth, and sometimes a small change in employment circumstances, or the bank or broker not having fully understood your employment situation, can cause an application or pre-approval to come unstuck and the finance to be declined.
As an agent, the only thing a pre-approval tells me is that you’ve spoken to a broker or bank and that some initial checks have been done on your ability to service a loan, but that’s it. It doesn’t tell me your finance is a done deal.
The folks at Residential Settlements recently wrote a blog that told the story of how a buyer and seller found themselves significantly out of pocket when the cash offer they made went pear shaped. You can read it here.
If you’re contemplating making a Clayton’s cash offer, being the cash offer you make when it’s not really cash, you might want to think twice and take the safe and ethical route that protects both you and the seller by making it Subject to Finance, which is what it really is anyway. Remember that it’s not just your money and life you’re gambling with, it’s also someone else’s.