Property Sellers: Only Accept All Cash Offers To Maximize Profits And Happiness

Are you selling a property and nervous about the process? If your local real estate market supports it, only accept all cash offers in order to maximize profits and happiness. Once a mortgage is involved, things can get really hairy.

Almost every Sunday I go for a walk, jog, or hike around a neighborhood to check out open houses, speak to Realtors, get some exercise, and find inspiration for interior design.

Open house hunting is seriously my new favorite free past-time. My previous favorite past-time was test driving new cars at various dealerships. What a blast that costs nothing!

One weekend I went to see a particular condo in Pacific Heights, San Francisco because it was a close comp to one of my rentals in the same building.

This particular property was only a one bedroom compared to my 2/2. But at 610 square feet it had a nice southern facing deck and private parking. The asking price? $690,000.

The open house was absolutely packed with couples under 35 years old as well as many retirees. Who knew one bedrooms were so popular?

Study Comp Sales Before Accepting Cash Offers

I asked the agent two questions on this comparable property:

Question #1

Do you think the price per square foot goes UP or DOWN for a two bedroom, two bathroom version of your listing (1 bedroom)?

Conventional thinking is that two bedrooms are more desirable due to more flexibility. This particular listing was asking $1,130 a square foot.

Answer: I think you can get better deals for two bedrooms now if you have the money (not what I wanted to hear). Prices have gone up so much that couples are now going ALL-IN on trying to buy a one bedroom condo for $800,000 because two bedroom condos are now going for $1,000,000+. The market for one bedroom condos is nuts, and I think many first-time buyers are getting desperate. 

My thoughts: People just want to own something. The premium spread between a 2/2 and a 1/1 is narrowing. Eventually, the premium will narrow so much that people will start thinking, “If I'm going to spend $800,000 on a one bedroom, why not just pony up 30% more to get 50% more space!”

This was my thought process when I was looking at the 2/2 market back in 2004. It was crazy then too, but once I moved up to the 3/2 single family home (SFH) market, the frenzy died down and I got much more value. Nowadays, being able to own a SFH in the north end of SF is considered a rare feat.

Related: The Best Way To Sell A House: MLS Or Pocket Listing?

Question #2 

Can I play the guessing game? I think with all this foot traffic, the winning bidder must be around $850,000 ($1,393/sqft)? Perhaps I should sell? My tenant's lease ends next month. 

But then again, why sell now when it seems like with the upcoming tech IPOs, there will literally be 10,000 new millionaires looking to buy a place in SF? What do you think will slow this market down?

Answer one week later after offers were due: I was expecting something in the mid-to-high 700s. The ‘comps' would suggest $725-750k ($1,188 – $1,229/sqft), and so I was hoping we'd do that, secretly wishing that someone would bid higher.

We received a lot of offers in the $725-750 range, a few in my secretly hopeful price range and four that were over 800k. Not to your guess of 850k.

The sellers chose the second highest offer, which was all cash. Half of the offers we received are so high, much higher than comparable sales. But because they required financing, I was concerned that they would not appraise and the offers would not work. 

Most agents whose clients were in the 740k to 780k range said they couldn't justify the offers their clients were making. And then there were four above that!

It seems like the San Francisco market goes in cycles. What might impact the market? In the next few years, we will have approximately 8,000 new rental units on the market in the city. 

This may cause rents to dip and have some people choose to rent instead of buying. What else could change the market? Rising interest rates might cause prices to slow in growth (and yes, buyers with cash offers won't care, so an AirBnB IPO might create a lot of new cash buyers). Water shortages? Earthquake

So yes, I think buying and holding real estate in SF is a really good thing (we're out of land and surrounded by water on three sides). And if for some reason you are considering selling, now is a really good time. 

Related: How To Choose The Best Realtor To Buy Or Sell A House

Cash Offers Are King For Property Sellers

All Cash Offers When Selling Property

I shared with you my very first mortgage refinancing failure. JPM Chase rejected me even though I have a ~800 credit score and could pay off the entire mortgage with my liquid assets.

One of the key takeaways from the post is: banks are only lending to people who don't need the money. Plenty of good creditors are getting rejected. This makes all cash offers all the more valuable.

The mortgage agent made a calculated recommendation to go with the second highest offer that required no loan given the highest offer was contingent on the buyer getting qualified.

If I was the Realtor, I'd probably accept $800,000 vs. $825,000 (guessing the offer spreads) as well. But if the highest offer was $850,000 with a loan, I might consider taking the $850,000 offer and putting the $800,000 cash offer in backup. However, I'm not so sure a 6.2% premium is enough with banks not lending.

Related: Closing Costs When Paying Cash For A Property

Comparing Cash Offers To Those Contingent On Getting A Loan

Which Offer Would You Choose?

All Cash Offer: $800,000 with a 95% chance of going through = $760,000 in expected value

Offer Contingent On Getting A Loan: $850,000 with a 70% chance of going through = $595,000 in expected value

Banks realize the real estate market is on the upswing and reaching unchartered valuation territories. If banks never adjusted their appraisal values, then clearly banks would never be able to make loans because real estate generally goes up over time.

But the lending stringency by banks, thanks to over-regulation by the government, is basically shutting out many qualified buyers. Meanwhile, the government is promoting mortgage assistance programs for first time home buyers that require only 0% – 3% down! Bizarro!

The law of unintended consequences is that instead of the government helping the middle class, they are shutting the masses out and allowing the rich to get richer. How many people do you know can pay $800,000 cash for a one bedroom? Certainly not many buyers under 35 years old!

If you are a property seller with multiple offers in a hot market:

1) Do not blindly accept the highest offer if it is contingent on the buyer getting a loan.

So many people are getting rejected, especially at record high valuations, that chances are high your buyer's loan will fall through. Once your property falls out of contract, your property becomes tainted i.e. a stalefish liting.

Future buyers will wonder what's wrong with your property, and bid lower as a result. You will also waste a ton of time, lost rental income, and feel a lot of stress if your buyer fails.

If you get cash offers that aren't as high as you would like, definitely don't discard them. Remember, you can always counter. Plus, you should bake in the value of peace of mind that cash provides versus the uncertainty and stress of relying on a buyer to get through lender underwriting.

2) For offers that require loans, carefully rank the lending institutions.

Credit Unions and boutique banks that focus on higher net worth individuals like First Republic Bank should be at the top of the list.

Potential buyers who are trying to get a loan from a mega bank, especially those like JPM Chase who are paying massive penalties to the government, should be at the bottom of the list.

It doesn't matter if a borrower has been pre-approved, they still most go through an entire underwriting process.

3) Consider all-cash offers or offers with no-financing contingency and 10% or higher earnest money (3% is standard).

It's just not worth trying to get top dollar anymore if the buyer requires a mortgage. Banks only want to lend to rich people.

The government only wants rich people to flourish because rich people are the ones who donate the most money. When any President comes to town, he's probably hosting $38,000 per head fundraisers at multi-millionaire and billionaire family homes.

Politicians just need to offer goodies to the masses to get in power. Once they are in power, the focus is towards the rich and their family and friends. The sooner we realize this, the better we will all be.

Consider Never Selling Your Property

It used to be that roughly 90% of all purchase contracts went to closing, but that number has slipped to only ~65% today due to buyer's financing falling through, a poor appraisal, the buyer gets cold feet, and the home fails an inspection contingency. So many things can go wrong, at the very least, minimize the financing risk when selling.

The very people calling for stricter financial regulations are the ones who are getting hurt the most by such regulations. The rich don't need to borrow money. They have lots of money already!

Regulations should be focused on the people who welched on their debt obligations, not the excellent creditors who kept on paying through the downturn.

Income generating assets are very valuable in a low interest rate environment. Hold on to them for as long as you can if you want to build greater wealth over time.

Every time I fantasize about cashing in, I slap myself for thinking so short-term. Furthermore, it still costs an egregious 5% to sell a property despite the creation of so many real estate internet companies.

If you make a lot of money or have a lot of money, society blesses you with great advantages. We know this from countless examples in politics, to getting your child into your favorite private college, to now buying property.

It must be incredibly annoying for the other bidders who require a loan to lose to all-cash bidders. But there's no use complaining. The government determines the rules.

See you with a suitcase of cash at the next offer due date!

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About The Author

41 thoughts on “Property Sellers: Only Accept All Cash Offers To Maximize Profits And Happiness”

  1. My favorite type of reality TV show is real estate. And I’ve definitely noticed a rising trend on those seriously addicting shows of more buyers with all cash offers. I’ve seen situations like you mentioned of a buyer getting two offers, one all cash coming in lower than one with a mortgage and the seller choosing to go with the all cash offer. They tend to just close much faster and easier. Fun post thanks!

  2. To Hmmm…

    1- If you think that SF values will be going down in the future and/or that tech will flock to cheaper labor, then you must be smoking some good stuff!
    2- REITs are irrelevant to the SF market, as they don’t invest here (too expensive. SF is mostly for deep pocket investors.)
    3- Bay Area employment is less diversified than NY? Where’s your proof? Bay Area is large and just as diverse as NY.
    4- just how is prop 13 pushing people out? If anything it protects those who made purchases here. U make no sense.
    5- SF and areas like Berkeley and Oakland are not loosing their counter culture, not by a long shot. Why? Many of those folks have rent control, so can stay put. And some of them actually brought their home.

    I suggest you go get a refund on your education, cause gurlll, you’z thick!

  3. My husband and I used to live in SF. We love the Bay Area and want to come back and buy, but worry that it’s a horrible investment long term for a few reasons. First, we’re millennials so we have a long time to be owners. SF has seen ridiculous price gains in the last 30 years in housing which quite frankly are completely unlikely to replicate. If we buy a condo at 1 million today will we see the price gains replicated in real terms in 20 years – completely unlikely. With incomes falling and inequality rising especially for most millenials and plurals (the majority of buyers by 2035), rents and housing are unlikely to go up much more. People will just leave and companies will follow. REITs will only buy cheap properties – preferably dirt cheap short sales, etc. Even stock options for employees are becoming less lucrative. Basically, no. I just don’t see it happening. Second, housing is completely dependent on the future employment market. The Bay Area is much less diversified than NY. It’s basically Detroit 50 plus years ago. Tech will face global competition eventually and tech companies will flock for cheaper labor. Tech is also pushing out other industries and people from the city making SF even less diversified. Furthermore, California because of prop 13 and enormous housing costs is pushing out young people, leading to higher dependency ratios which are correlated with lower GDP in the long run. The picture long run just isn’t so rosy for the city by the bay. Third, SF is losing its allure as this diverse counter culture bedrock with all the new rich techies and MBAs moving in. We’re not sure that’s good for future house prices.

  4. Pingback: Does A Good Credit Score Really Matter Anymore? | Financial Samurai

  5. I’ve never sold a property before so I really haven’t thought about this before but gosh it makes a lot of sense to go for an all cash offer even if it isn’t the top bid. Banks are so tough these days and I totally agree there are no guarantees when it comes to getting loans. Sounds Great.. :)

  6. Sam, living in the east bay (not inn SF) I do agree that things are quite crazy and we are all waiting for the bubble to pop. In such a scenario; which instrument do you use to hoard cash so you can deploy it optimally during the crash?

  7. So are SF properties selling for above listing price? I’m from NYC, where prices are very high as well, but most properties don’t sell for above listing.

  8. Mysterious Guy

    I definitely echo that housing market is crazy in Bay Area.

    We (my wife and I) started looking this year, and I’m surprised at the frenzy. The area we looked at has limited inventory and within 4-5 days of when the house is put on market the seller already accepts an offer! Usually it’s way above the listing price, and way out of our budget.

    Thankfully, we found a place we liked that had a few problems that kept most buyers away. We can fix those problems easily.

  9. Even Steven

    We had a similar conversation about selling an income producing asset in a few years and wondered what would really make us sell? I mean are we going to be able to take the profit and get the same rate of return/monthly income that we received now, it sure doesn’t seem like it. We might be buy and hold people………forever.

  10. I bought my townhouse in the south bay back in 2004 rather than a SFH due to the incredible price differential and obvious overpriced market. Rode out the 2009 hiccup without a problem, and now with the ridiculous growth since, my tiny place has almost doubled in price.

    This won’t end well. But at least I still have a roof over my head, and barring natural disaster, even in a massive correction it will still retain significant value.

    Time will tell.

  11. Most of the good deal in Broward County (fort lauderdale) are sold to cash buyers and all out state/out of the country ( South American, Californians,etc). They are pricing out the locals, with all of the new construction in the one million range!!

  12. First time landlord in Bay Area. House was rented out before I moved out. I think I will keep it as long as I can hold on to it. I cannot imagine owning one now – too expensive. I am in NC now with a 10 year plan, and love it. But nothing like bay area!!!!! I shall return someday….

    1. Glad you held on, to keep the inventory tight. If you sold, you might never be able to come back. Many, MANY people I’ve spoken to have had the same idea, only to never return due to prices.

      How is NC?

      1. Love NC, looking at trying to get a one bedroom condo in the heart of Charlotte as rental. I think Charlotte is gonna explode soon! Come over for visit! :-)

  13. I can’t imagine coming up with $1mil cash to buy a property. Maybe if you’re a celebrity, sport, lottery winner, or in high tech area where you are in SF (surrounded by water is nice, ocean breeze year round, good for people with arthritis :P) With all the tech IPOs pop up like mushrooms, I’m wondering if it’s 1999 again. What’s your thought?

    1. It feels much crazier than in 1999-2000. Way more people here in SF, a lot more wealth creation.

      The difference is that companies are now based off revenues and profits, not just “eyeballs.”

      I think the bubble grows for another three years, and then a 20%-35% correction overall, and an absolute slaughtering of companies who aren’t EBITDA positive.

      But, with banks not lending, and properties being bought for all cash, the housing market will stay buoyant. Maybe a 10-15% correction at max.

  14. I’ve never sold a property before so I really haven’t thought about this before but gosh it makes a lot of sense to go for an all cash offer even if it isn’t the top bid. Banks are so tough these days and I totally agree there are no guarantees when it comes to getting loans. San Francisco’s property market is nuts. With the way things are going with population growth here I can’t imagine what the market will be like even just a couple years from now.

  15. earlyretired

    Thanks for providing this Birdseye view of the frenetic real estate situation in SF!

    It provides all the evidence I need to prove that as a species, we really have short memories. The hundred-year flood of housing bubbles is barely a few years old, and yet, here we go again.

    My advice.

    Take a trip anywhere outside of SF, NY, LA, etc.

    Gain a little perspective. Recognize that (even though you desperately don’t want it to be true), you are in a bubble.

    Not convinced? Just look up the Case-Shiller home index. Aggregate home prices in the US are 28% overvalued. SF is worse.

    Next, don’t walk. Run to liquidate all your real estate “investments” at these outstanding prices. (and yes, of course, prioritize the all-cash offers).

    Then, invest the money in anything without high interest rate sensitivity.

    And remember, don’t be greedy. Stay short on the yield curve. Recognize that with inflation now inflecting to negative, even a couple of hundred basis points is “real” profit.

    Now, wait for the Fed to do exactly what they’ve gone to great lengths telling us they are going to do.

    Wait for the fallout.

    Then wait some more.

    Then, wait even a little longer……,

    Longer, longer….there! It will be more than obvious when the day finally comes that it’s safe to go shopping again. Remember March 2009?

    1. Sounds good.

      I remember 2009 very well. That’s when I started this site.

      I’m glad I didn’t sell in 2006-2007. We’re about 20-30% higher than that now. Rents didn’t drop during the downturn, but stayed sticky. I own for cash flow purposes now. Do you not own any property anymore?

      I have been contemplating selling at least one property. But in 20 years, I know I’ll regret it.

      Where do you live where property is not so bubbly?

      1. earlyretired

        In aggregate, although there are stomache turning roller coaster rides along the way, real estate has simply paced inflation in this country over the last 100 years.

        And while the “Rich Dad,Poor Dad” followers claim you can make enough in rent to cover all the expenses that inevitably come along, I really haven’t seen that work out too well in real life – (new roof anyone?)

        Just plot a long term chart of the S&P 500 (including dividends) against a long-term chart of real estate (including net rents), and the race isn’t even close.

        But I suppose its possible that SF marches to its own drummer. Maybe the supply-demand dynamics really will cause SF to be one of the great outliers….

        I’d still contend however, that owning a bunch of great businesses will be significantly more valuable in 20 years, than owning a bunch of rental properties.

        To answer your question, we live by the beach in Fl. And the only real estate we own is the house where we live.

        In 2000, properties in our area sold for X.
        By 2008, same properties sold for 3X;
        In 2011, back to X.
        Today, they are selling for 1.6X. (And I don’t expect them to go racing up as the Fed increases the cost of a mortgage in the coming period…)

        1. Aggregate real estate follows aggregate inflation.

          Plot SF, Manhattan, London, Hong Kong real estate and check out the difference.

          Why not sell your house now if you are so bearish?

          1. earlyretired

            Do you have access to the data? How do the 50 million employees at the S&P 500 businesses match up against owning dirt?

            As for selling our house, its not an investment. Its an expense (that definitely doesn’t cash flow). But my bearishness does certainly prevent me from buying a second or third…I’d much rather allocate this capital to owning great businesses.

  16. Hi Sam,
    The 5-6% egregious commission to sell property is why I decided to get a RE brokers license 7 years ago. My profession is medical and I use this for my own buying and selling. I’m surprised with your love for real estate investment and financial knowledge you have not acquired one. Anyone with a bachelors degree can acquire one in as little as a few months and eliminate the commissions charged by realtors. As you know 3% goes to you when buying a property and 3% when selling. The only costs remains are loan closing costs which disappear also in all cash deals. Might be good as another topic on the blog…..

      1. I figured it took me maybe 150 hrs of time. On the purchase or selling of a 2 bedroom condo in SF of $1 mil that’s a $30k loss of hard earned money, or about $200 an hour. Time well spent for RE investors who buy and sell in expensive locals.

        1. Indeed. I’ll think about it if I ever sell.

          The thing is, with the Internet and easy docusign boiler plate offer letters, and my propensity to just make a deal with the listing agent solo (did that for my last place), the 2.5-3% is not there. Maybe at stake is more like 1.5-2%.

  17. If I was a seller, I would only accept all cash offers as well.

    We should follow the banks and government and shut out people who require loans to own property, especially first property. It doesn’t matter if only wealthier people can own homes. Home ownership is a right. There is nothing wrong with renting.

    Mortgage debtors caused the crisis. Shutting them out makes sense!

    If you can’t beat the government, ride their wave!

  18. I have never sold a property before, but from the experience of purchasing 8 of them so far, cash offers make a massive difference. Every offer we have put on a property except one was immediately accepted by the seller. I already knew that cash in king, but what this experience has really taught me is that I am offering too much on my cash deals (even though I thought I was already getting a nice discount). On my next property, I am going to try offering 80% of market value and expect to have many rejections, but it really doesn’t matter because even if only 5% of submitted offers are accepted, that is still a great deal! Most people would think that putting out so many offers would be very time consuming and expensive, this is true using the traditional offer scenario with signed contract and earnest money deposit, but by using letters of intent to purchase, you can put out hundreds of offers very simply and at no cost.

  19. OT – but nothing like the feeling of knowing that 25% of your earnings goes to the federal government (I know others pay more). And that doesn’t even count what you give to the local and state governments.

  20. “The law of unintended consequences is that instead of the government helping the middle class, they are shutting the masses out and allowing the rich to get richer. How many people do you know can pay $800,000 cash for a one bedroom? Certainly not many buyers under 35 year old!”

    The government is helping the middle class by not allowing them to take out record high mortgages with insanely low mortgage rates. With low rates, more money is being borrowed than ever. When the rates go back up there will be less foreclosures due to the large all cash position. Either way, 800k for a one bedroom – no thanks. I understand the limited land position in San Fran, but surely you could invest that money elsewhere and rent a 1 bedroom in the meantime.

    I’ll be waiting for another market downturn before making my first purchase in Los Angeles. Lots of phony wealth going on in all assets. I’m not hoping for better prices, but I am looking for better inventory to choose from in the first time home buyer zone.

    What are the HOA’s like on the condo? In West LA its a lot of 300-500 HOAs.

    1. I like your perspective a lot! Good point about controlling people without self control to borrow more than they can afford if rates go up.

      Hence, you are supportive of my argument that all sellers should only accept all cash mortgages then. This way, sellers help protect society from irresponsible debtors by only selling property to those who can truly afford it.

      There won’t be a next downturn if everybody pays in cash! Great job accumulating cash yourself and waiting before buying.

      I guess the only risk is: what if there is no correction? What if prices keep going up faster than you can save? What if other people have more money are waiting for the same thing? What if during a correction, your earnings power becomes at risk?

      Check out:

      1. The presence of all cash buyers doesn’t surprise me with rising asset prices. I see and hear HELOC commercials again. I also hear home flipping strategy ads. Funny how those are popping up again.

        What I shake my head at are REITs and Crowd Funding Real Estate. People are locking themselves out of housing by investing in these. Housing is expensive and unattainable by income only. If we crowd fund real estate, we get locked out. This would also explain a high cash-only buyer.

        I just read your next article in relation to interest rates staying low for a long period and I came to the realization that without the option to lower interest rates further how can we increase asset demand? Have we reached the peak? Maybe asset prices will stagnate and rise per inflation going forward.

        “What if there is no correction?”

        One of your articles mentioned that the next Bear market will eventually occur and I think this might be the time that I am waiting for. The housing market and stock market go hand in hand.

        “what if prices go up faster than I can save?”

        This generally has been the case for a long while now (most likely due to falling interest rates for 30 years). I have no definitive answer, but my only answer is that if this is the case going forward, then I probably don’t make enough money and should look to improve my income elsewhere.

        “What if other people have more money are waiting for the same thing?”

        This is the question that kills me. I saw what happened after the housing collapse. There was investor frenzy doing all cash buys. There was and still is limited inventory, even after 7 years! Lots of people were locked out from buying anything. There were a few people I know that got in and I’ll just have to have high hopes I can be one of them. (Even though at the time I thought it was still expensive). At the time I didn’t make enough money to even consider it.

        “What if during a correction, your earnings power becomes at risk?”

        I think most people think their job is economic proof. I actually believe mine is, but who knows what could happen. If i lose my job during this time then I’ll probably be lucky that I don’t have a 500k+ mortgage waiting for me at home during my unemployment months.

        1. Good rational thoughts. A lot of people are waiting for the correction to buy, or buy more property, including me.

          Hence, you and I will be competing for that next sweet ocean view home, and my goal is to make and save more money than you and other competitors during this time!

          And if things get really ugly with a downturn, we’ve got to then convince ourselves to let go of our cash and buy. This is harder that it seems when jobs are disappearing and stocks are tanking.

          Hence, buy real estate for LIFESTYLE and not for profits. We spend so much time in our homes, buying a home for life is almost recession proof!

  21. Barry Allen

    What this article fails to mention is that potential buyers can get prequalified financing BEFORE they place a bid on a property.

    1. 100% of buyers are prequalified before placing a bid on a property in strong markets. Being prequalified is like having a heart beat before making an offer. Important, but standard. If you aren’t prequalified, you have 0% chance.

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