Buying a property with all cash can save the buyer many of the costs of closing and lender fees in the short term, and many thousands of dollars in interest paid over the years. Although it takes a little more involvement from the buyer, being an all cash buyer is a seller's dream and puts the buyer in a stronger position in a hot sellers market where multiple bid scenarios happen.
The first step for someone who has never made a cash offer on a house should be to hire an a real estate attorney (See Client Approved Vendors. Ensuring that is the attorney's only focus. Your REALTOR® will help the buyer find a house), offering access to Multiple Listing Services and information on properties listed for sale in the market. Your REALTOR® will also help the buyer negotiate the pitfalls which can arise when buying a house, avoiding mistakes, bad judgement and potential fraud. (It's a tough old real estate world out there!) Likewise, the attorney is essential to draw up the contract to purchase the property, checking title, and ensuring all is well before you sign the necessary documents to affect a sale.
Starting The Hunt.
For many, this is the fun part - finding a home which meets their needs and dreams. This is where the your REALTOR® will ask you to sign a disclosure stating that you are aware of who represents who and in what capacity. (Don't worry, this is not a contract, and does not bind you in any way to one agent.) Once you find that house, inform your REALTOR® that you will be making an all cash offer and request a Current Market Analysis on the property so you can get a really good idea of the correct market value of the property. By ensuring your REALTOR® is a certified PSA Pricing Strategy Advisor, or is a member of a team with a PSA is a smart move here. Your REALTOR® will present the offer in writing to the Listing Agent, along with all the other necessary documents, disclosures and the all important Proof of Funds necessary to purchase the property. They will in turn present all the offers to the sellers, so a well thought out strategy discussed with your REALTOR® is essential. There may be a counter offer to your offer for example, and if your REALTOR® already knows what you are willing to do next, then it may save valuable time, ensuring you are in still in a strong position.
When you reach a "Meeting of the Minds," (an actual real estate term by the way,) it's time for the home inspection. Some buyers actually waive their right to an inspection thinking (probably rightly,) that it will give them an advantage. We highly advise all of our clients to get a thorough inspection or you may end up buying a money pit! Your REALTOR® can also help you here. Let them provide the names of several professional licensed home inspectors which their clients have dealt with in the past and are deemed reliable and fair. (See Client Approved Vendors.) If the inspection finds few or no significant defects, you can be pretty confident in the property and continue the buying process. If they find major problems, you can still walk away from the deal, provided your approval of the inspection was a contingency of the contract you signed. If the property was built prior to 1978, your Realtor should provide you with a Lead Paint Disclosure Document signed by the sellers and an explanatory booklet at this time.
You also may want an appraisal of the property. It is a requirement of most lenders, but as you aren't planning on using a lender, it's an option. Since you are financing the deal and undoubtedly want to be sure the price is fair, and appraisal isn't a bad idea. They cost between $400 and $1,000 and will either save you thousands, or show you you're getting a good deal. This will be done after contracts are signed if you decide to go this route. Your RE Attorney will ensure there's a "Get Out" clause should the appraisal come in lower than expected. You can of course, reopen negotiations again should that occour.
Sign a contract.
After all the due diligence is concluded successfully, it's time to sign the contract and put some money where your mouth is. In the Hudson Valley of NY, RE Brokers and their agents do not accept Earnest Money, instead the downpayment varying from 3% to 25% usually is held by the Seller's Attorney. Whether or not you get this money back if the deal falls through will also be specified in the purchase agreement. Elsewhere, Earnest Money is sometimes requested in advance of an offer being presented.
A cost a cash buyer has the option to incur is title insurance. Title insurance is yet another thing you don’t need, but might opt for anyway. It’s a one-time cost that protects you from title issues for as long as you own the property. Typically, a lender requires you to buy insurance to cover their stake in your property, but without one, the choice is yours. Whether or not you choose to get insurance, most states still require you to do a title search before the transfer of a property. This establishes the line of ownership and payment going back decades, ensuring that you are actually able to purchase the house.
Once both sides are happy with the proceedings and the documents are all in order, it's time to close. Prior to closing, the buyer must wire the funds for the transaction to the title company or escrow company. Escrow companies exist to act as a neutral third party in the transfer and payment of money during the home buying process. On the day of or a few days before the closing is scheduled, the buyer with his REALTOR® should make a final inspection of the property, to make sure any promised repairs have been made satisfactorily, and the house is in "broom clean" condition.
Since there is no bank involved to set the closing date, you can close when you can get the attorneys, title company and REALTORS® all in the same room with pens in hand. At closing be sure you bring two forms of ID, a check or checks for the seller, and commission checks for the REALTORS® and attorneys. The house is now yours and the Title is Transferred into your name. Congratulations!