Hi everyone,
To all the experience investors out there, what is your advice on cash offer? i.e. 20% off the asking price or more? How do you negotiate in terms of cash offer?
Hi Newstart,
Can’t comment as a buyer as I’ve never made a cash offer. However, we sold our first IP to a cash offer. Initial offer was 88% of our asking but eventually sold for 96%. From a vendors point of view, the fact that the offer was cash wasn’t significant enough to induce us to sell a long way below asking. Had we been desperate for a sale or early settlement, it may have had more sway. I guess what I’m trying to say is that how much difference a cash offer makes to the vendor will depend on their unique circumstances. The state of the market (boom, bust or flat) will also impact the price. I don’t think you could apply a blanket “first offer at 20% below asking price” just because you’re offering cash. Rather I think the advantages of cash is that it gives you an edge over most other buyers who are subject to finance and may enable you the buyer bring in some other conditions that the vendor might oherwise be reluctant to agree to.
Flatout
With cash you can generally settle much faster, so you could possibly use this as a selling point.
Terryw
Discover Home Loans
Parramatta
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I think 20% reduction for a cash offer is quite insulting. Unless the vendor is desperate or the property way overpriced, a cash offer is (like mentioned earlier) just a bit more interesting for the vendor because they only have to wait (in Qld) for the cooling off period, and not wait for finance and pest clauses to expire before the contract becomes unconditional. We bought our last IP with a cash offer because another contract had been signed two days prior, countersigned by the vendor, but not signed off by the purchasers. We slipped in a cash offer, clean contract, got the house.
In this case the cash offer meant the vendor could go to sleep that night knowing the house was sold.
Wylie.
In what way would a cash offer entice a vendor.
I have put an offer in and removed any finance caluse knowing because i know the fiannce will be available to me. This is as good as a cash offer.
I can’t see why a cash offer would win a vendor over if there was a bidder offering substantially more. I know as a vendor I don’t care if the offer is cash or fiancned as long as I get my money!
If a vendor has two contracts on offer and one is cash he has the option of signing the cash contract. Until the cooling off period was implemented, this meant the contract was unconditional immediately on being signed by both parties. Now with the cooling off period there is still a wait until the contract goes unconditional, but the vendor knows the purchaser risks losing a percentage if he pulls the cooling off clause. Of course, the cooling off period could be waived by the purchasers.
If I had two contracts, say $350K cash unconditional, and $345K with a building and pest clause and finance clause, I would seriously consider taking the cash offer so I could move on and not have to wait for those reports.
Say you hold out for the $350K with the clauses. Unless your agent keeps marketing your property, you risk losing all buyers looking in the two week period until the clauses lapse. Your house is effectively “off the market” and your buyer may not get their finance or get cold feet and use the clauses to get out of the contract.
Your house then goes back on the market, people think there must be something wrong with the house because a contract has fallen through, or it falls into the “stale” basket. And any buyers looking while the clauses were in place have possibly bought another house, so you lose them as well.
We always buy using a clean, cash contract. We get our finances organised prior to making an offer.
Wylie.
This is what happenened with the last IP we sold, had it on at 245k, 2 weeks in 2 offers 1 from people buying PPOR for 241k, 1 from investor 240k, silly me takes the 241k, the agent lets them fiddle around with inspections/finance for over 3 weeks. When i gave them a dead line to exchange they pulled out on that day. In the mean time the tenants get wind and moves out. So i said to agent put it back on extra 10k you had it to easy. The investor with the first offer comes back and buys it for $247,500 CASH no problem. If there is 2 offers take the cash buyer i say, finance clause can be a get out of jail card.
I was under the impression if you sign a contract in your solicitors office there is no cooling off period in NSW.
Robo
ps not for 20% off though unless you have priced it that way.
Also the agent did take it off the market so we lost a month lucky the buyer didn’t buy elsewhere.there should definitely be a price diff between a cash and non-cash offer. even a committed buyer wo has had finance approval may find their circumstances change e.g. they fall pregnant and no longer have a job, and then the bank can withdraw finance approval. In fact the bank could withdraw approval even if your circumstsnces havent changed e.g. they feel they have enough exposure in a certain town or somehting.
also a cash offer doesn’t mean you have the cash sitting in your bank account earning 2% – it just means you are committing to paying over that money
http://www.megapropertygroup.comINVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT
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