What does "all cash" mean?

[Anonymous]

We did all cash with a check from the bank that was money pulled out of our investment accounts, there was no other way we would get the house because it was a very competitive foreclosure situation. We then turned around and got a HELOC to do repairs needed and once done we got a mortgage. The money went back into the account after a couple of months. Worked out well, our house has quadrupled in value and the money has also multiplied many times since we did this (15 years ago though).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:B.

No mortgage is involved so no unforeseen circumstance (as in bank denies mortgage if the appraisal comes back less than the offer ...).

Yes, you have to provide bank statements with the offer.

OP here. Could I provide the bank statements, and waive the financing and appraisal contingencies, then still turn around and get a mortgage? That would still make me "all cash", right? Maybe it makes no difference, but it seems like sellers are increasingly obsessed with getting an "all cash" offer. I guess I'm just trying to figure out if lots of these "all cash" buyers show the assets on paper, then just turn around and get a mortgage.

You would not be a cash buyer in this case. Cash buyers can close much more quickly than a mortgage buyer. What you are describing is a mortgage situation. Doesn’t matter that you have enough in the bank to buy in cash. The fact that you are going through a bank means that you are not all cash.

no, OP would still be considered a cash buyer, unless they needed to delay close to allow for financing concerns.

as long as they can show the assets and the money shows up in the settlement attorneys escrow account the day it is supposed to, no one cares which account initiated the wire.

I disagree. No bank is going to give the buyer a mortgage without an appraisal, even when the buyer waives the financing contingency. So the bank will have to get into the house before closing and it would be clear to the seller that we’re not talking about an all cash deal.

The term "cash offer" means that the purchaser is committing to settle on a specified date and the offer is not contingent on financing or appraisal-- aka, the purchaser has demonstrated that they have the liquid funds to settle.

The GCAAR contract is very clear that the purchaser can pursue alternate financing as long as there are no additional expenses to the seller and the settlement date is not delayed, and that the seller agrees to allow access for inspectors, surveyors, or appraisers. Obviously something like this is not plausible on a 10-day close, but it is definitely doable on a 60-day close, and likely possible on a 30-day close.

Exactly. I don't know why people are getting all hung up on whether someone gets a mortgage or not. As long as the result to the buyer is the same (there is no financing contingency), it doesn't matter. If we bought a house in the near future, we'd probably take most of the money from a liquidity access line of credit on our brokerage account to avoid a taxable event from selling investments. We'd probably pay it off more quickly than we would a mortgage, since the interest rate is slightly higher. But from the buyer's perspective, it would be "all cash."

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have made two all cash offers with no contingencies -- one on a townhouse in a highly desirable area of the DMV, and the other on a second home. In both instances, I provided an automatically generated letter from my brokerage firm showing that we had a larger balance in the account that we planned to use than the asking price for the house. That was the only thing that we provided, and it was deemed sufficient.

In one of the cases, we paid for the house in cash from that account but after closing immediately turned around and got ourselves a mortgage. If you do that within 60 days (I think) it's treated as a home purchasing mortgage and not as a refinance or a home equity loan. That makes the terms a little better.

You did what now? That's not the way! Was it FSBO and no one advised you?

it's absolutely the way. as long as the mortgage closes within 90 days of the house sale, it can be deducted as a mortgage for acquisition in your taxes.

also some banks are squirrely about lending to self-employed people, but are willing to put, say, a 60% mortgage on an already acquired property.

one bonus of paying cash is that you can get a title insurance policy for the entire property value, and then get a separate policy for the mortgage holder later.

But didn't you have to pay taxes on the sale of investments? Why didn't you borrow against the shares (avoiding the taxable event)? You can then mortgage the house and repay the line of credit.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have made two all cash offers with no contingencies -- one on a townhouse in a highly desirable area of the DMV, and the other on a second home. In both instances, I provided an automatically generated letter from my brokerage firm showing that we had a larger balance in the account that we planned to use than the asking price for the house. That was the only thing that we provided, and it was deemed sufficient.

In one of the cases, we paid for the house in cash from that account but after closing immediately turned around and got ourselves a mortgage. If you do that within 60 days (I think) it's treated as a home purchasing mortgage and not as a refinance or a home equity loan. That makes the terms a little better.

You did what now? That's not the way! Was it FSBO and no one advised you?

it's absolutely the way. as long as the mortgage closes within 90 days of the house sale, it can be deducted as a mortgage for acquisition in your taxes.

also some banks are squirrely about lending to self-employed people, but are willing to put, say, a 60% mortgage on an already acquired property.

one bonus of paying cash is that you can get a title insurance policy for the entire property value, and then get a separate policy for the mortgage holder later.

But didn't you have to pay taxes on the sale of investments? Why didn't you borrow against the shares (avoiding the taxable event)? You can then mortgage the house and repay the line of credit.

in that case , i needed to divest and diversify anyway, and had just been putting it off until I found a place I wanted to buy. my financial advisor just was ecstatic that I finally had pushed the "sell" button, because half of my net worth was concentrated in my former employers stock.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have made two all cash offers with no contingencies -- one on a townhouse in a highly desirable area of the DMV, and the other on a second home. In both instances, I provided an automatically generated letter from my brokerage firm showing that we had a larger balance in the account that we planned to use than the asking price for the house. That was the only thing that we provided, and it was deemed sufficient.

In one of the cases, we paid for the house in cash from that account but after closing immediately turned around and got ourselves a mortgage. If you do that within 60 days (I think) it's treated as a home purchasing mortgage and not as a refinance or a home equity loan. That makes the terms a little better.

You did what now? That's not the way! Was it FSBO and no one advised you?

it's absolutely the way. as long as the mortgage closes within 90 days of the house sale, it can be deducted as a mortgage for acquisition in your taxes.

also some banks are squirrely about lending to self-employed people, but are willing to put, say, a 60% mortgage on an already acquired property.

one bonus of paying cash is that you can get a title insurance policy for the entire property value, and then get a separate policy for the mortgage holder later.

But didn't you have to pay taxes on the sale of investments? Why didn't you borrow against the shares (avoiding the taxable event)? You can then mortgage the house and repay the line of credit.

in that case , i needed to divest and diversify anyway, and had just been putting it off until I found a place I wanted to buy. my financial advisor just was ecstatic that I finally had pushed the "sell" button, because half of my net worth was concentrated in my former employers stock.

Still doesn't make sense. Sounds like you missed out on some tax strategies and dollar cost averaging that could have saved you money in the long run

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:B.

No mortgage is involved so no unforeseen circumstance (as in bank denies mortgage if the appraisal comes back less than the offer ...).

Yes, you have to provide bank statements with the offer.

OP here. Could I provide the bank statements, and waive the financing and appraisal contingencies, then still turn around and get a mortgage? That would still make me "all cash", right? Maybe it makes no difference, but it seems like sellers are increasingly obsessed with getting an "all cash" offer. I guess I'm just trying to figure out if lots of these "all cash" buyers show the assets on paper, then just turn around and get a mortgage.

You would not be a cash buyer in this case. Cash buyers can close much more quickly than a mortgage buyer. What you are describing is a mortgage situation. Doesn’t matter that you have enough in the bank to buy in cash. The fact that you are going through a bank means that you are not all cash.

no, OP would still be considered a cash buyer, unless they needed to delay close to allow for financing concerns.

as long as they can show the assets and the money shows up in the settlement attorneys escrow account the day it is supposed to, no one cares which account initiated the wire.

I disagree. No bank is going to give the buyer a mortgage without an appraisal, even when the buyer waives the financing contingency. So the bank will have to get into the house before closing and it would be clear to the seller that we’re not talking about an all cash deal.

The term "cash offer" means that the purchaser is committing to settle on a specified date and the offer is not contingent on financing or appraisal-- aka, the purchaser has demonstrated that they have the liquid funds to settle.

The GCAAR contract is very clear that the purchaser can pursue alternate financing as long as there are no additional expenses to the seller and the settlement date is not delayed, and that the seller agrees to allow access for inspectors, surveyors, or appraisers. Obviously something like this is not plausible on a 10-day close, but it is definitely doable on a 60-day close, and likely possible on a 30-day close.

This is what we did on two different investment properties. We had a three-week close each time. Not everyone wants or needs a ten-day close.

[Anonymous]

An all cash offer is always hugely more attractive. Anyone who thinks otherwise knows nothing. It is a much surer bet and often can add a lot of flexibility.

I will go through a recent transaction we had to explain how it might work.
- We put in an all cash offer, and it was accepted immediately. No proof was necessary.
-We didn’t have the cash, but we had stocks valued significantly higher.
- We were selling a similarly priced property.
- If our house sale did not go through first, we would have to find the cash.
- Liquidating the stocks would cost hundreds of thousands of dollars in capital gains, so it was to be avoided at all costs.
- We sold all stocks that would not accrue capital gains and we arranged a loan with our brokerage against the rest to cover the rest of the cash needed. That would have been an 8% loan for however long the gap was between the closing of our purchase and our sale.
- A buyer came in and really wanted the old house. They could do all cash (using whatever mechanism they needed to get liquid).
- The buyer offered a one week close to help us avoid the loan. This would be impossible if it wasn’t all cash. Instead of waiting for other offers, we jumped and took theirs on the first day it was on the market.
- Between the stocks we sold and the cash the buyers handed us at the closing two days before our purchase close, we avoided the loan and paid in cash.

Getting a mortgage on either property to get the cash was not possible because of various legal/titling issues. But we could have gotten the loan, closed, and then mortgaged if necessary, but that would have been very messy and would have occurred AFTER we had ponied up the cash at closing.

Note it is absolutely possible that we could have had a bidding war had we waited even a week, but for various reasons, it was more important for us to get this clean fast. There is no way we would have just accepted the offer on the spot if it was not all cash. Even if they hadn’t offered the fast close, we still would have taken all cash over a similar offer with the contingency because the risk of the buyers financing falling through was not worth it to us.

[Anonymous]

Can you waive the financing and appraisal contingencies but still have a mortgage if you feel confident that your back will come through with your financing? I understand that this would not be an all cash offer, just trying to understand if we have leeway to choose to waive those contingencies to help us win.

We have roughly a 40% down payment and cannot do an all cash offer, but are just trying to be more competitive.

[Anonymous]

Anonymous wrote:Can you waive the financing and appraisal contingencies but still have a mortgage if you feel confident that your back will come through with your financing? I understand that this would not be an all cash offer, just trying to understand if we have leeway to choose to waive those contingencies to help us win.

We have roughly a 40% down payment and cannot do an all cash offer, but are just trying to be more competitive.

Yes, you can. In this area you have to waive all contingencies if you are bidding on a competitive house. Talk to your lender(s). They will tell you if they advise waiving the financing/appraisal contingencies and how fast they can close. Most lenders are able to do two week closes now. They kind of have to, because the 30 and 60 day close times make your offer unappealing. Most sellers want a fast close and free rentback...

That being said, you may still lose to an all cash buyer despite all that, because they can close even faster since they have everything sitting in liquid assets and don't have to deal with an appraisal, underwriting, etc.

[Anonymous]

Anonymous wrote:Can you waive the financing and appraisal contingencies but still have a mortgage if you feel confident that your back will come through with your financing? I understand that this would not be an all cash offer, just trying to understand if we have leeway to choose to waive those contingencies to help us win.

We have roughly a 40% down payment and cannot do an all cash offer, but are just trying to be more competitive.

if you do not have the funds to back a non-contingent offer, you'd be risking forfeiting your deposit if you fail to secure financing and close on time.

sellers are trying to avoid exactly that risk when they select a cash offer.

[Anonymous]

For those of you who liquidated stock to pay in cash - did you have to pay taxes on the sale?

[Anonymous]

Anonymous wrote:

Anonymous wrote:B.

No mortgage is involved so no unforeseen circumstance (as in bank denies mortgage if the appraisal comes back less than the offer ...).

Yes, you have to provide bank statements with the offer.

OP here. Could I provide the bank statements, and waive the financing and appraisal contingencies, then still turn around and get a mortgage? That would still make me "all cash", right? Maybe it makes no difference, but it seems like sellers are increasingly obsessed with getting an "all cash" offer. I guess I'm just trying to figure out if lots of these "all cash" buyers show the assets on paper, then just turn around and get a mortgage.

Waiving the financing contingency, only means that you will agree to the terms of the contract including the closing date regardless of whether any external financing comes through. When you are "all cash" you just say that you have the cash on hand. Whether you take out a mortgage is up to you, but you, the mortgage applicant, take on the risk if the bank has to delay when they can close on the mortgage. If you commit to one date, and the bank later comes to you and says that they need 2 weeks more to verify assets/income/whatever, with a financing contingency, you can delay the closing until the mortgage comes through and the seller agrees to that. If you waive the financing contingency and present yourself as an "all cash" buyer, you show proof that you have the funds to cover the cost of the sale. That can be anything from a letter from your financial institution that you have the funds or assets that can be liquidated to meet the cost of purchase. It also means that should you externally try to get a mortgage, that even if the mortgage lender delays the mortgage, you will still deliver the full cost of the contract to them on the closing date. And you will get the mortgage later at your convenience.

So, you can do what you want and present yourself as an "all cash" buyer, with proof of assets from your institution, as long as you are willing to liquidate your assets and pay the full price of sale at closing, even if the mortgage lender delays.

[Anonymous]

There is no financing contingency. The buyer is on the hook for earnest if they chose to pull out. If I were selling I would ask for high earnest plus proof of adequate funds.