Is It Better To Sell A House To A Cash Buyer?
When selling a property, homeowners may have the choice between offers from traditional buyers relying on mortgages versus those able to purchase with cash upfront. Cash buyers may seem attractive for promising a smoother process. But are there also downsides or risks for sellers? Weighing up the pros and cons helps determine if accepting a cash offer makes for plain sailing or whether financing contingencies provide protections missing from cash-only purchases.
Who are Cash Buyers?
Cash buyers have typically built up substantial capital from:
- Business profits accumulated over time
- Residual savings from past property development deals
- Equity release or sale of existing property portfolio
- Large inheritance lump sums
- Pension funds taken as cash at retirement
- Proceeds from selling a business
- Overseas currency holdings
- High-net-worth individuals with sizable disposable income
While some have accumulated wealth gradually, cash buyers may also include opportunistic investors swiftly exploiting market cycles.
House Buyers Cash
Buyers looking to purchase a property with cash have several options to provide evidence of their funds:
- Savings – Bank statements or passbooks showing sufficient cash in the account.
- Released Equity – Documents confirming completion of a recent prior property sale.
- Inheritance – Solicitor’s letter verifying inheritance, or grant of probate paperwork.
- Company Sale – Contracts from the sale of a business releasing capital.
- Investments – Certificates proving the redemption of assets like shares.
- Pension – Confirmation letter of cash withdrawal from pension provider.
- Parental Help – Bank transfer document with gift aid declaration.
- Business Partners – Proof of capital injection into account from partners.
- Offshore Funds – Bank verification of foreign cash funds entering the UK account.
Providing auditable paperwork trails legitimises cash funds being used for purchases.
Speed of Cash Purchases
Intuitively, cash buyers seem advantageous for sellers as transactions can happen more quickly:
- Cash funds are readily available so purchases are not reliant on mortgage lending.
- No lengthy delays from needing mortgage approvals before exchange.
- The buyer having no property chain speeds up the sale.
- Cash buyer keen to progress quickly to secure the property.
- Exchange and completion happen closer together or simultaneously.
- Cash is seen as low risk so lender surveys are not always required.
- Conveyancing is less complex without financing elements to coordinate.
While valid up to a point, other factors also influence timescales, which cash alone cannot always accelerate.
Risks of Cash Buyers for Sellers
Some inherent risks are worth highlighting around cash offers:
- Greater due diligence is required as no lender verification of the buyer.
- Higher money laundering risk requires additional safeguards.
- Large cash sums appear more suspicious if origins are not evidenced.
- No recourse to a regulated lender if issues arise later.
- Harder to substantiate credibility and proof of funds.
- Reliant on the owner’s honesty in disclosing property defects.
- Cash is seen as a higher risk requiring tighter ID checks.
- Scope for price renegotiation downwards if problems are found.
While tempting, cash offers warrant caution. Financing contingencies provide seller protections missing from cash-only deals.
Questions to Ask Cash Buyers
Given the risks, key questions sellers should ask cash buyers include:
- Requesting documented proof cash is from legitimate sources.
- Asking detailed questions on background, occupation and income.
- Enquiring about any prior involvement in buying/selling property.
- Understanding motivations behind purchase – investment or owner-occupation?
- Establishing where funds originated – savings, sale proceeds, inheritance?
- Do they own property locally or elsewhere currently?
- Confirming what due diligence and surveys they plan to undertake.
Probing for answers helps sellers assess credibility and be assured of genuine intent.
Benefits of Mortgage Buyers for Sellers
In contrast to cash, finance-based offers bring advantages like:
- Background affordability checks by the lender before sale approval.
- The buyer has to fund a deposit so commitment is demonstrated.
- Survey requirements provide visibility on property conditions.
- Valuation by the lender’s surveyor prevents gross overpayment.
- The lender has a financial stake so will progress the sale responsibly.
- More parties with vested interests in successful completion.
- Better ability to claim compensation if issues are concealed or the sale collapses.
- Stringent ID and anti-money laundering checks are required by lenders.
While mortgage sales may take longer, seller protections warrant consideration.
Should I Accept a Lower Offer from a Cash Buyer?
If a cash buyer offers below the price of a finance-based offer, the certainty of funds could still sway sellers to accept less:
- Cash in hand provides peace of mind over potential lending delays.
- Higher offers may fall through if the mortgage is declined later.
- Cash deals involve fewer participants who could derail completion.
- Cash buyers likely have funds instantly available to complete purchases.
- The ability of buyers to proceed willingly and quickly with cash.
- Cash offers may reflect exploiting a motivated seller’s situation.
- Excessive discounts should raise suspicion regardless of cash.
- The desire for speed should not compromise achieving fair value.
Chasing quick sales via cash could mean leaving money on the table. But modest discounts may be justifiable.
How to Assess the Source of Cash Funds
When presented with a cash offer, steps sellers can take to check the legitimacy of funds include:
- Ask the buyer directly about the origins of the cash and verify answers.
- Request documents like bank statements evidencing funds.
- Look for consistency between the amounts evidenced and the offer amount.
- Check for regular legitimate payments into accounts supporting savings capacity.
- Follow the paper trail for large credits like inheritances or property sales.
- Query discrepancies, vagueness or sudden cash inflows without explanation.
- Conduct anti-money laundering identity checks as required.
- Leverage professional advisers like solicitors to verify the evidence submitted.
While not guaranteed, verifying paper trails provides reasonable assurance for sellers around cash legitimacy.
Risk of Losing Buyer if Too Intrusive
Vetting cash buyers is advisable. But taken too far, excessive questioning could jeopardise transactions:
- Making accusatory remarks about cash being suspicious.
- Asking intrusive questions beyond verifying funds for purchase.
- Requesting extensive confidential personal financial data.
- Delaying transactions significantly to scrutinise the buyer’s background.
- Imposing excessive identity verification requirements.
- Polite questioning framed around helping satisfy regulations.
- Proportional checks appropriate to purchase price and buyer profile.
- Demonstrating there are standard checks for cash purchases.
- Explaining the need to clarify details that appear unusual at first glance.
- Reporting any legitimate suspicions privately without hinting at the buyer.
Avoiding offence while satisfying obligations is key, or buyers may withdraw entirely.
Cash Risk Mitigation for Sellers
If accepting a cash offer, tactics sellers can use to reduce risks include:
- Agree on a higher initial deposit to deter time-wasters.
- Make contracts conditional on thorough identification procedures being completed.
- Use a conveyancer experienced in handling cash purchasers.
- Request the buyer pay for extra searches that may highlight issues.
- Ask for proof of sufficient building insurance upfront.
- Include penalty conditions if completion is delayed without cause.
- Make inspection a condition of sale and stipulate professional reports required.
- Shorten the time between exchange and completion dates.
- Monitor the buyer’s solicitor performance closely for delays.
With care, cash risks are manageable. But contingencies and vigilance assist.
Should I Offer a Cash Discount?
A popular tactic is sellers offering a cash discount as an incentive:
- May secure a sale faster with a cash buyer.
- Certainty of funds clearing on completion.
- Buyer has the capacity for quick completion and flexibility on dates.
- No sale chain gives more control over the transaction.
- Stronger negotiation position if issues arise necessitating price drops.
- Discounting may anchor lower price expectations among other buyers.
- Over-discounting could undermine achieving the best sale value.
- Cash discounts still require robust buyer background checks.
- Quick sales should not override due legal diligence.
If offering a cash discount, small percentages are preferable plus rigorous ID verifications.
Using Contract Conditions for Cash Sales
Legal contracts provide mechanisms that can strengthen cash sale protections:
- Make full disclosure of buyer identity and proof of funds mandatory.
- Specify upfront exactly what money laundering checks will be conducted.
- Include warranties that evidence and declarations made are accurate.
- State cash funds must be deposited with the seller’s solicitor in advance.
- Prevent contract exchange until funds are visible and verified.
- Make completion conditional on cleared funds being received as expected.
- Specify interest charges or penalties for any completion delays caused by the buyer.
- Allow for termination of contract if suspicions of money laundering arise later.
With the right conditional clauses, contracts provide recourse if cash sales turn problematic.
Handling Multiple Offers
If multiple offers arise, comparing cash versus mortgage buyers involves weighing up:
- Cash – Speed of transaction but requires greater due diligence.
- Mortgage – Slower but lower money laundering risk.
- Cash – Certainty of funds but possible discount pressure.
- Mortgage – Higher offer but lending falling through remains a risk.
- Cash – No chain collapsing but fewer participants to pursue if issues.
- Mortgage – More parties involved but greater accountability.
Unless cash is significantly below other offers, legality and credibility checks are essential before accepting based on speed promises alone.
Should I Tell Other Buyers About a Cash Offer?
A cash buyer bidding may tempt sellers to broadcast this to encourage competing offers. However, disclosing other buyers’ terms could be detrimental:
- Breaches confidentiality which aggrieves buyers and agents.
- Contradicts best practices in the industry.
- Creates resentment that may disrupt constructive sale negotiations.
- Could be portrayed as unethical tactics pressuring buyers.
- Cash does not always equate to the best value if lower offer.
- Speed should not override achieving maximum sale price.
If considering revealing cash offers, seeking guidance from your agent is advisable first plus carefully evaluating ethics and priorities.
Securing Against Cash Buyer Defaults
If concerns remain about a cash buyer defaulting, options to reduce risks include:
- Agree to a non-refundable deposit of 10%+ of the purchase price.
- Ensure the buyer’s solicitor confirms funds are set aside specifically for the purchase.
- Make the contract conditional on the successful verification of funds.
- Specify substantial penalties for non-completion after exchange without proven legitimate cause.
- Shorten the window between exchange and completion dates.
- Include language prioritising making good any losses you suffer from default.
- Request the buyer insurance against non-completion risks post-exchange.
With the right contractual terms and evidence, cash buyers carry less risk of stalled completions.
Cash property purchases invariably appear straightforward for sellers who assume speed and certainty. However, accepting cash offers blindly without conducting full due diligence checks can expose sellers to greater risks than mortgage-based sales. While cash offers allow house buyers cash to act fast, sufficient scrutiny ensures they have legitimate grounds to do so. Achieving quick sales should not trump undertaking proper identity and proof of funds verification, regardless of how cash-rich buyers appear. With careful checks and suitable contractual conditions, cash offers can deliver benefits. But sellers should not let the lure of speedy cash completion overrule sound judgment.