What You Need to Know About Cash Offers When Selling Your Home in the Bay Area

Selling a home can be a complex process with many factors and strategies to consider. One selling option that you might come across is the “instant” cash offer from a direct buyer who will purchase your home off market, promising favorable terms and a speedy sale. In this article, I will delve into the basics of cash offers and discuss the pros and cons of such deals. I will also present an excellent alternative to the typical cash offer scenario which may be attractive to some sellers who are looking for greater privacy and less hassle as compared to what they might expect with a “traditional” sale on the open market. Whether you’re a homeowner in the Bay Area or anywhere else, it’s good to know all your options, so understanding these cash offers can help you make an informed decision.

What is a Cash Offer?

You would think that this is a simple question with an easy answer: a cash offer is when a potential buyer offers to pay for the entire cost of the house without using a mortgage loan or other financing options.  In point of fact, relatively few “all cash offers” are in fact paid all in cash.  While some cash buyers may pay 100% in cash direct from their bank, it is more common for a “cash offer” to be partially financed using private or “hard” money.  This “hard” money is short term money that is very expensive (think a 3-5% origination fee, and then 8-10% interest) – but is quick and “easy” to get, as it does not require a traditional appraisal process or lengthy bank underwriting. Other “cash “offers may draw upon funds in a line of credit – typically, a home equity line of credit.

How Many Homes in the Bay Area are Sold for Cash?

According to research by ATTOM Data Solutions, all-cash purchases accounted for a whopping 38% percent of single-family home and condo sales nationwide in 2023. The National Association of REALTORS reported that 32% of all homes sold in January 2024 nationwide went to a cash buyer.  And data from the Silicon Valley area MLS (mlslistings.com) show that in Q4 2024, just over 15% of all single-family homes were sold for cash in Santa Clara county.

Types of Cash Home Buyers

When selling your home, you might encounter different types of cash home buyers. Understanding who they are and their motivations can help you navigate the process more effectively. Here are some common types of cash home buyers you may come across:

1. Normal Retail Buyers

In a competitive housing market, potential “retail” buyers may make cash offers to stand out from the competition. This can be more common in a seller’s market, where inventory is low, buyer demand is high, and bidding wars are more likely.  A “retail” buyer is one who is happy to pay fair market value – or possibly even more than fair market value, depending on their motivation and the terms of the sale – with the intention of living in the property for the long term.  These buyers are the best buyers for any home, as they are not looking primarily to make any money on the deal in the near term.  They want a nice place to live, perhaps to raise a family or to retire, for many years to come.

It’s important to know that many retail buyers in the Bay Area are actually themselves cash buyers.  At least 20% of homes are sold for cash in any year, and in some years, in some market segments, it may be that 40% or even 50% of all sales are to cash buyers anyway.  In most parts of the country, even “retail” cash buyers expect a discount because they are making strong cash offers – but that is much less true in the Bay Area, where retail cash buyers compete against other retail cash buyers – and against strong financed buyers, with huge down payments and no contingencies (as we will discuss below).

2. House Flippers

House flippers are individuals or companies that buy properties, make renovations or repairs, and sell them for a higher price. They aim to buy low and sell high, often targeting homes that need significant work. House flippers typically make cash offers before a property is even listed for sale, because they are not looking to compete with normal retail buyers. They then fix up the properties and sell them for a profit.

If you have seen these “We Buy Houses” companies are businesses that advertise that they’ll buy your house for cash – these are almost always house flippers. Flippers can rarely pay anything close to fair market value for a home, because of the risks and the economics of their business.  If your home is in such poor condition that a “retail” buyer could not or would not buy it, then selling to a house flipper may be your best (and perhaps only) option.

We Buy Houses Cash Offer Bandit Sign

3. iBuyers

iBuyers, short for instant buyers, are real estate companies or tech businesses that use software to determine the value of homes and make instant cash offers. These companies typically charge a fee for the convenience of selling your home quickly. It’s important to note that iBuyers may only be available in select markets and have strict purchase criteria, such as the size and age of the house, and the kind of work that it needs.

A few years back there were a number of prominent iBuyers working parts of the Bay Area real estate market.  Many of them have ceased operations as they lost enormous amounts of money when the market shifted.  One that has stood the test of time and still operates in parts of the Bay Area is OpenDoor. If you’re looking for a Bay Area iBuyer, they are probably your best bet.

A lot of the other iBuyers morphed into “buy before you sell” lenders. They will buy your home for cash, with the expectation that you will be buying another home using their specialized financing.  While this may not be what you’re looking for, it does help out in many situations.

4. Real Estate Investors

Real estate investors may make cash offers on properties with the intention of turning them into investment or rental properties. They are looking to buy homes that they can either renovate or rent out for profit.  These “buy and hold” investors will often pay more than a house flipper, but less than a “retail” buyer who intends to own and occupy the home themselves.  That’s because many of these investors are looking to leverage the property – while they may pay cash initially, they will often refinance once the deal has closed, and they won’t want to be taking too much of a monthly loss on the rent versus their mortgage, tax, and insurance payments. This will limit the amount of money that they are willing to pay.

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Pros of Cash Offers

Selling your home for cash can have several advantages. Let’s explore some of the pros of cash offers:

1. Fewer Contingencies

Cash buyers typically have fewer contingencies compared to traditional offers. Buyers don’t need a financing contingency, which means the sale won’t be derailed if they don’t qualify for a mortgage loan. Additionally, there is no need for an appraisal, which lenders require to ensure the home’s value matches its sale price.

However, it should be noted that these cash buyers will always have a contingency for at least the receipt and review of a preliminary title report – and if they find anything in there they object to, they can pull out of the deal. And they will often have a 3, 5, or 7 day inspection period to at least allow a project manager or contractor to walk through the property to check for any obvious red flags – and if they don’t like what they see, they can back out or re-negotiate.

Ironically, it is the normal “retail” buyer in today’s Bay Area market that is most likely to give you a non-contingent offer on your home, provided that you have done the standard pre-sale inspections.  And even though these buyers may be getting a mortgage loan, they will very often waive the loan and appraisal contingencies, because they are typically strong buyers with excellent credit and large down payments.   And many of today’s mortgage lenders can close loans in as little as 15 days.

2. No Need for Repairs or Home Staging

One significant advantage of accepting a cash offer is that you can sell your home as-is. Cash buyers typically don’t require any repairs or updates to be made. They often plan on renovating the property themselves, saving you from investing money into a home you’re trying to sell.

I would like to point out that the standard California Residential Purchase Agreement is already an as-is contract. A seller is not required to make any repairs or updates before selling their home.  True, you may sell at a lower price versus an otherwise-similar home that has been recently and thoroughly renovated, but often times, not very much less – and certainly much more than selling off-market to a cash buyer.

3. Shorter Closing Process

Since there is no mortgage application and underwriting process involved, a cash transaction can significantly reduce the closing timeline. While the exact timeframe may vary, you may be able to close the sale in as little as one week. This can be beneficial if you’re looking to move quickly due to a new job or other commitments, or if you are in some kind of financial distress.

I find that most sellers do not actually want to close in a week – it’s just too soon to be out of the house.  Most are fine with two or three weeks – and almost all conventional mortgage lenders can close in that time period.  And if the buyer is making a non-contingent offer, the likelihood of closing is very, very high – at least as high as with any house flipper or real estate investor.

Sell your home in a weekend

Cons of Cash Offers

While cash offers can be enticing, it’s essential to consider the potential drawbacks. Here are some cons of cash offers when selling your home:

1. Lower Sale Price

One significant downside of cash offers is that they may be lower than what you would expect from a traditional buyer. Cash buyers often follow the 80/20 rule, where they offer no more than 80% of the home’s as-is market value. It can be challenging to negotiate on price since their offers are typically take-it-or-leave-it deals. However, if you’re looking for a quick and hassle-free transaction, the lower sale price may be a trade-off you’re willing to accept.

Does this sound like a super low-ball offer?  Yes, it’s low – but not as low as you may think.  One big reason people are interested in selling off-market to a cash buyer is that they will “save the commission” selling directly to a buyer. If the average commission cost is 5%, then really, they are only offering you 15% below fair market value.  Some will do better than that – but rarely much better.  On the other hand, some will do worse – often, considerably worse.

2. Lack of Competition

In a cash sale, you may miss out on the opportunity to receive multiple competing offers. Traditional home buyers outnumber all-cash buyers or companies, especially in the Bay Area. By going through the traditional listing process, you increase the chances of attracting more potential buyers and receiving higher (often much higher) offers.

I always tell my clients that what really drives Bay Area home prices – and the price that you will be able to sell for – is the balance between supply and demand.  If nobody knows your house is for sale (because you’re selling it quietly off-market), demand will be much lower – and your buyer will know they have little or no competition, which will directly inform their negotiation strategy.

3. Risk of Fraud or Scams

When selling your home for cash, it’s crucial to exercise caution and do your due diligence. The cash home buying industry can attract scammers who take advantage of sellers in difficult financial situations. While not all cash buyers are fraudulent, it’s vital to sell to reputable individuals or companies. Ensure you thoroughly vet potential buyers and seek recommendations from trusted sources.

And that’s where I come in.  If you are interested in selling for cash to a real estate investor or house flipper, I can help you by directing you to one of the many buyers in my trusted Bay Area Buyers Network. I work with many investors and house flippers and I can help you find one that is honest and trustworthy.  Yes, they will get you a lower price, but they may still offer a price and terms that works for you to get your home sold as quickly as possible, without getting totally ripped off.

Point. Click. Offer. Sell.

An Excellent Cash Offer Alternative

There are many reasons Bay Area sellers are interested in selling to a cash buyer, and two of the biggest are they want to sell their homes as-is, without doing all the work that they imagine a REALTOR® would suggest they do before putting their home on the market.  They also want to maintain their privacy, without having hordes of people showing up at all hours of the day (and night sometimes) wanting to get in, or public open houses where dozens of people at a time will descend on their home and start opening closet doors, cupboards, medicine cabinets, and who knows what else.

But selling off-market to a cash buyer does have its drawbacks:  primarily, it means getting a significantly lower price for your home.

Increasingly, Bay Area sellers are turning to Compass Private Exclusives.  A Compass Private Exclusive is a way to sell your home quietly via the Compass Agent Network, the largest and most productive network of agents in the Bay Area.  Selling your home as a Compass Private Exclusive puts your home in front of some of the most-qualified “retail” buyers in the Bay Area, who, by and large, are not looking for a discount.  It’s a way to sell your home quietly, without doing any work to it, to a buyer who may well pay cash and is likely prepared to offer you strong terms as well.

Selling your home on the open market is likely to yield you the absolute highest price the market has to bear – and it’s the only way you can be sure that’s what you’d be getting. But by leveraging the reach of the Compass platform to access our clientele as a Compass Private Exclusive – especially if it is the first part of the Compass Three Phased Marketing Strategy – you may be able to achieve many of your objectives with considerably less work, stress, and fuss.  Contact me today if you’re interested in talking over the program details.

Is a Cash Offer Right for You?

Deciding whether to accept a cash offer depends on your specific situation and priorities. Here are the only scenarios where, in my opinion, a cash offer may be worth considering:

1. Need to sell today:  if you absolutely need your home sold today, and money is not so important to you, selling off-market to a flipper or real estate investor may make sense.
2. Very poor condition:  if your home is in such poor condition that it won’t qualify for bank financing, selling to a cash buyer will be a necessity anyway.
3. You don’t care about the money:  some people just don’t care about leaving tens or even hundreds of thousands of dollars when they sell.  They just don’t want the hassle.  If that’s you, selling to a cash buyer makes sense.  If so, let me know, and I will put you in touch with several of them I know and trust.

If any of those three are true for you, a cash offer may make sense.  If none of those are true, then selling off-market to a cash buyer will not give you the results you are looking for – and the results that you rightly deserve, having wisely invested in and cared for your home in the Bay Area.

Conclusion

When selling your home in the Bay Area or any other location, cash offers can provide a viable alternative to traditional offers. Understanding the various types of cash home buyers and weighing the pros and cons will help you make an informed decision. Consider your specific circumstances, priorities, and the local housing market to determine if a cash offer is the right choice for you. If you decide to pursue a cash sale, exercise caution, and seek recommendations from reputable sources to avoid potential scams. Finally, while not necessary, working with a real estate agent can provide valuable support throughout the process.

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