Is it a good thing or a bad thing? We take a look from both sides, seller & buyer!
If you’ve bought, researched or sold a property before then you might have come across the term before “cash house buyer” or “cash buyers only”, but what exactly does that mean?
It might sound pretty self-explanatory, but there’s actually quite a bit to it and we’ve written this complete guide from both the buyer's and seller's point of view as to how to deal with cash, if surveys are required, the pros and cons and so much more!
Do you have a specific question about our service, if you should sell to a cash house buyer, the pros and cons or which are the best companies to choose?
If you’re a cash buyer of property it means that you can afford to buy it outright, with no requirement for a loan or traditional mortgage. It’s actually a more common method of buying a property than you may think, with just under a third of all sales typically being cash purchases.
Sometimes people misunderstand the meaning of cash buyers, thinking that because they are selling another property to purchase this one, that’s considered cash, but it’s not. A cash buyer must have the funds available without the sale of another property to purchase a home outright.
Sometimes on listing, or particularly when dealing with investment or property sourcing companies, you may see the term “cash buyer only”. It means that the seller of that particular property will only accept offers from people who are in a position to proceed quickly, buying immediately with available money.
If a prospective buyer requires a mortgage, loan funding or the money is tied up somewhere like another property, then they won’t be accepted.
The reason for this is typical that the owner of the property needs, or wants, to sell the property as quickly as possible. Mortgages and loans take time and add a significant step in the process of purchasing a home.
It’s worth noting that proof of funds is often required by the seller, in order to agree – which later in this article we touch on how do I show proof of funds when buying with cash.
Buying a house with cash is a much faster process than you may expect, and it actually doesn’t change the whole process of purchasing a house all that much. You’re essentially just removing a big segment of the process, which is the cutting out of the mortgage lender. The process in that respect works a little bit like this:
Having your offer accepted on a property
Instruct your solicitor
Instruct and pay for surveys
Your solicitor will then do the searches, queries and any necessary checks.
Exchange contracts and pay the deposit
Complete and finalise
Because you can cut out the mortgage aspect, you can run through this process relatively quickly and easily – the longest aspect of it is likely to be the solicitors.
It’s an interesting question because when you are buying a home in a typical fashion you’re required to get searches on the property, and some lenders will require you to have some form of survey done as well.
But, as a cash buyer is it necessary? After all, it’s your money that you're risking. The genuine answer is no, but we would highly, highly recommend that you do so. The searches cost a few hundred pounds, which may sound like a lot, but in the scheme of things they are 100% worth doing.
These searches are done and instructed through your solicitor.
To sellers, a cash buyer is an attractive option – but whether or not it’s better to buy with cash, it really depends.
There are of course some great benefits from the buyer's position, with the main one being it puts you in a really strong position when it comes to negotiating for the property due to the speed at which you can purchase.
There are also additional benefits such as the purchase being less likely to follow through because there’s no mortgage, the chain isn’t as complex and there’s great security for the buyer.
On the flip side, however, if you’re an investor then it can mean tying up a lot of your money in a single property and potentially hampering your profit potential by not going with a buy to let mortgage option.
Take The Property Buying Company, for example, we’re what is considered a cash buyer, and due to our position and speed in which we can purchase, we offer below market value.
On the flip side, we do cover all the legal fees, and you won’t have to pay estate agency costs – not to mention the considerable amount the seller saves by cutting the duration of sale from months to just 7 days!
The obvious benefits to the seller are that you can sell quickly, which allows you to avoid a usually stressful, tedious and drawn-out process.
This can be beneficial in certain circumstances like if the seller has inherited a property, going through a divorce, at risk of repossession, any situation that would be advantageous to sell your largest asset quickly.
It can also depend on the type of property, there are certain properties, such as ones that need renovation, which is particularly alluring for cash buyers.
As well as all that, if you’re a seller that has constantly been let down by your property chain, you may opt for a cash buyer as it offers a less complicated and more simplistic process which is important with the likes of Coronavirus and Brexit having an effect on the lender's decisions.
This is a popular question, and of course, selling to a cash buyer is safe, they go through the same legal checks as anyone else – including an Anti-Money Laundering check, or AML, which will make sure that the cash funds come from a legitimate source.
We think that the question might revolve more around cash house buying companies, sellers wondering whether they are legitimate and safe as an alternative way to selling your property. We can assure you it is, for the most part, you need to choose a company that is trusted – and there are a few ways of doing this.
The main way is to check if the company is part of The Property Ombudsman, and The National Association of Property Buyers, as this offers a place for redress as a customer, but secondly and just as important, you should check the companies reviews to get honest opinions.
There are several advantages and disadvantages of being or selling to a cash buyer, some of which we’ve already touched on throughout this article. If you’re considering buying a property with cash or selling to a cash buyer, then here’s a quick breakdown list of advantages and disadvantages for you to weigh up.
There are no risks of any mortgage issues, such as the lender rejecting financing – which is one of the most common reasons that a sale may fall through.
If you’re buying in cash, you’re not relying on the sale of a property, meaning you’re not in a chain. This again reduces the likelihood of the sale falling through, and it allows the transaction to move as smoothly as possible.
One of the biggest advantages is that it’s quick. As you don’t need to arrange a mortgage, the speed of the releasing of funds is very swift, and again, if you are able to purchase a home quickly it gives less opportunity for the sale to fall through.
For the buyer, there’s more security – you don’t have to make repayments and therefore there’s never the risk of repossession.
From the seller's point of view, a cash buyer is in a strong position, so when someone offers in cash, they usually will pay below market value.
There is still the possibility that the cash sale can fall through. Although risks are reduced, there can still be issues in regards to searches and surveys.
A property that is advertised as cash buyers only may have issues with it, so you need to proceed with caution. Some of the reasons that it might be advertised as such could be due to the property being unmortgageable, or they could be in arrears with their lender.
Being a cash buyer, you will have to put a significant amount of money into the property – so you lose a lot of liquidity as opposed to if you went for a Buy To Let mortgage, which would only tie up a small percentage of the overall amount.
To summarise, both selling and buying with a cash buyer involved is typically better for all parties, mainly because of the speed of the transaction, but you just need to be aware of the risks and pitfalls of doing so.
The main difference between the two when it comes down to it is debt, buying a property outright for cash obviously saves you significantly on any interest that would be added through obtaining and paying a mortgage.
As we’ve talked through, there’s a lot to consider when buying a home outright for cash. The main differences are the speed at which the transaction can take place, the decreased likelihood of the sale falling through and of course, the fact you have no debt and interest to pay.
You also get the freedom as to whether you want to do surveys and searches on the property, although we highly recommend that you do.
When buying any property, an estate agent may ask for proof of funds before taking the property off the market.
This can be done to make sure that you are making a genuine offer for the property to avoid a disappointed seller and to check that you haven’t acquired the money by criminal means.
How do you go about providing the proof of funds? For cash buyers it’s relatively straightforward, all you have to produce is bank statements of your cash amount over the past few months or years to show how the money has been built up over time.
If the money has been obtained through other means, such as being left in a will or selling shares, you’ll need to provide evidence for that as well.