If you’re buying or selling in Perth, you’ll come across the terms ‘cash’ or ‘subject to finance’ when you’re making or receiving an offer.
But what does the term ‘cash offer’ actually mean?
Is it the same as having the literal cash in your wallet to whip out and pay for your morning cup of joe at Bossman? (Does Bossman even take cash? Can you imagine what it would look like whipping out your suitcase of cash at a home open?!).
Or, does it mean you’ve got the full whack already in your bank account?
And the one that many buyers ask us here at Red Fox, “Am I cash if my finance is pre-approved?”
The answer is neither.
A cash offer is an offer that is made without a subject to finance condition.
It’s the buyer saying they’ve already got the funds, or will definitely have the funds, to pay the full purchase price, plus stamp duty, at settlement.
Where the funds are coming from isn’t specified.
Those funds could be tied up in a term deposit, sitting in shares, or squirreled away somewhere (let’s not dwell on that last one). So they’re not necessarily sitting in savings, ready to go.
So can you make a ‘cash’ offer if you’re borrowing?
Yes, you can.
In fact, it’s a tactic that many Eastern States buyers, who buy that way at Auction, use to try and give them the edge when buying here in WA.
Is it without risk?
No, it’s not.
It all relies on the certainty of your funding & where the money is coming from.
If your money is in shares, what happens if there’s a market correction prior to settlement?
If you’re a buyer who’s still borrowing, are you 100% confident that the bank will lend you the money?
If something goes pear-shaped, be prepared to lose your deposit. We ask for a larger deposit if you’re making a cash offer, so there could be a bit at stake.
And if the seller goes on to re-sell the property for less, you’re also at risk of being sued for the difference. Ouch.
So what’s the benefit of a cash offer? For the seller, it means that the purchase is subject to one less condition.
When we weigh up offers, we look at both price and conditions.
A cash offer means one less hoop to jump through before the sale becomes unconditional, which is typically the point we refer to the property as being ‘sold.’
So are cash offers more attractive to sellers than subject to finance offers?
Yes and no.
A cash offer that is still subject to conditions might not be as attractive as a strong (i.e., pre-approved) subject to finance offer that’s not subject to any other conditions.
Many cash buyers take the view that they can make a lower offer for a property because it’s ‘cash.’ In our experience, the majority of sellers will accept a higher subject to finance offer than a lesser cash offer.
The difference between a cash and finance offer is only a 3 or 4-week wait. And sometimes there’s no wait at all – the settlement dates for a cash or finance offer could be the same.
So there’s rarely any cost or downside for the seller in accepting an offer subject to finance. It all depends on the preferences and circumstances of the seller.
A cash offer might help you stand out, but it won’t make you a shoo-in.
If you’re borrowing and considering making a cash offer, our advice is to talk with your broker and understand the risks involved. Be prepared to make a higher deposit, and realise that you’ll still need to be competitive price-wise, particularly if there are multiple offers.
Image from Canva
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