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Cash Is King.... 

Why it is that cash offers usually win the sale?

It is no secret, nor surprise, that Central Oregon has been experiencing considerable demand for housing for the last several years. In 2020 the demand soared while the inventory dwindled. The inventory shortage, coupled with an already competitive market, has made the current market equal to an Olympic-style competition. It's become commonplace for buyers to now find themselves competing in multiple-offer situations. I'm willing to bet dollars to doughnuts that every reader of this column has heard at least once about someone selling their home for cash, buying property for cash or someone whose offer was not accepted because it wasn't cash.

We've all had that vision, when someone says "cash," of the suitcase or duffel bag full of nice, neat, thick stacks of money. When it comes to real estate—and basically all legal transactions—that image does not apply. Cash, in terms of a real estate offer, is what it implies (sans the suitcase full of money): an all-cash purchase without the need for financing. Cash offers are incredibly attractive for a number of reasons, including no financing contingencies and no appraisal contingencies.

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A financing contingency is a contractual clause that expresses the purchase and sale of the property is contingent on the buyer obtaining a loan funding the purchase. It also acts as a safeguard for a buyer in the event that they're unable to secure financing/a mortgage. It allows the buyer to terminate the transaction without monetary penalty or legal ramifications, unless otherwise contractually agreed.

An appraisal contingency essentially allows a buyer to terminate a transaction if the property the buyer is contracted to purchase does not appraise at or above the purchase price. This contingency, like the financing contingency, allows dissolution of the contract without monetary penalty to the buyer.

As a seller, the fewer contingencies the better—hence why cash offers are so attractive; there are fewer opportunities for a transaction to go awry or to reopen the door to negotiations. In addition, cash offers typically involve quicker escrows. Generally speaking, cash transactions not only have faster closings, but they also alleviate the tensions and anxieties for a seller when not dealing with multiple contingencies.

Another reason that cash offers are the preferred offer: these offers tend not to involve seller contributions/concessions. Some loan programs require a seller to contribute payment toward the buyer's closing costs and fees. In other situations, a buyer may need seller contributions in order to complete the purchase. Cash offers all but eliminate the need for the seller to relinquish funds from their proceeds, since the ultimate goal is to close the sale with the highest return the market allows.

Cash offers are generally seller preferred, as they know that a cash offer with the proof of funds is less likely to have stumbling blocks with contingencies, more likely to close and close faster. The longer the transaction, as is typically the case with financed purchases, the more opportunities for something to derail the sale. The general impetus when selling a property is to get market value, with the least number of hurdles in the shortest amount of time. And so goes the saying...Cash is King.

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