The All Cash Offer in NYC Explained
Submitting an all cash offer on a property in NYC offers a number of benefits including the possibility of a lower sale price and a quicker closing. More importantly, an all-cash offer will usually put you at the front of the line when it comes to the pecking order against competing buyers. This is especially valuable in the case of co-ops and hot listings. On average, you should expect to save money with an all cash offer. However, the size of the discount you may receive as a result of being all-cash varies by listing. This is because sellers have varying degrees of risk aversion, meaning that some sellers would still prefer a higher sale price from a financed buyer vs. a quicker and lower risk deal with a cash buyer.
Advantages of a Cash Offer in NYC
The advantages of an all-cash offer from a seller’s perspective are a faster closing and a lower likelihood of the deal falling through. Although the vast majority of buyers are qualified for a mortgage in NYC, there are still plenty of risks and delays associated with applying for a mortgage.
Unfortunately, not all buyers end up receiving a commitment letter from a bank or receiving clearance to close. If a financed buyer has a mortgage contingency and the bank doesn’t agree to make the loan, the buyer is entitled to cancel the deal and receive back his or her deposit.
Therefore, a mortgage contingent deal is not a ‘sure thing’ from the perspective of the seller even once a sale contract is signed. Cash deals, on the other hand, usually do not have any contingencies which would allow the buyer to back out of the deal before closing.
This means that if a non-contingent, cash buyer fails to show up with the money at closing, the seller gets to keep the buyer’s 10% contract deposit.
As you can imagine, each individual seller may assign a different value to the certainty of a cash deal vs. a mortgage contingent deal. For example, let’s say a seller has an imminent job transfer to London and he or she needs to sell ASAP. This seller will likely assign a high monetary value to a cash offer vs. a financed offer since the latter is lower risk. Therefore, the seller will likely be willing to accept a much lower purchase price from the cash buyer.
If, on the other hand, the seller is an opportunistic investor who is not in a rush to sell, he or she may care very little about having a slightly faster and safer deal versus receiving top dollar for the sale. In other words, the seller will probably only be willing to offer a cash buyer a marginal discount on the purchase price.
Sellers also prefer cash deals since they close faster. This is because an all-cash buyer avoids the mortgage application process which can take up to a month or more in some cases. Financed deals are also subject to additional delays prior to closing caused by the mortgage lender.
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Advantages to Buying a Co-op All Cash
Buying a co-op all cash is especially beneficial to the seller because co-op boards are much less likely to reject a cash buyer compared to a typical purchaser who is taking out a mortgage. If you’re able to afford a co-op outright, it usually suggests that you will pass any co-op board’s financial requirements for applicants with flying colors.
With that said, not all cash co-op buyers realize that you still need to satisfy a co-op’s debt-to-income ratio and post-closing liquidity requirements even if you’re paying all cash. Furthermore, some co-ops will be particularly strict when reviewing your application if they feel that you don’t have stable employment and/or a family member is essentially paying for your apartment.
Co-op listing agents in NYC are particularly excited about the prospect of an all-cash offer for the same reason we mentioned above: there’s a higher likelihood of board approval, closing and and eventual commission checkcompared to a financed buyer.
Because of the risks associated with co-op board rejection, co-op sellers are much more likely to accept a lower cash offer vs. a financed deal compared to sellers of condos or houses. Therefore, you have an especially high likelihood of beating out competing offers as an all-cash co-op buyer in NYC. This is especially helpful for hot listings which are prone to bidding wars.
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Disadvantages of a Cash Offer in NYC
The primary disadvantage of a cash offer as a buyer is that you won’t be able to take out leverage on your purchase. This means that you’ll have less cash post-closing to invest in other things compared to if you had taken out a loan.
In addition, all-cash purchases in NYC are somewhat difficult because of how expensive properties are in the city. Once you factor in buyer closing costs, the hard cash outlay for a cash purchase in NYC can be astronomical.
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Are All Cash Offers Non-Contingent?
Not always. Some cash offers do contain contingencies, such as a Hubbard Contingency if you need to sell another property first before closing on your purchase.
If your cash offer has a contingency, it’s far less beneficial to the seller compared to a traditional financed, mortgage-contingent buyer. Therefore, your chance of receiving a discount just because you are all cash is very low. The only actual potential benefit to an all-cash, contingent offer is that it may close faster than a financed deal.
With that said, some non-contingent buyers who can afford to pay all cash still prefer to take out a mortgage. In this scenario, the deal is lower risk for the seller but it won’t close any faster since the buyer still needs to go through the mortgage application process.
Pro Tip: Estimate your seller closing costs in NYC with Hauseit’s interactive closing cost calculator for sellers.
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Disclosure: Hauseit (https://www.hauseit.com) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).