Cash Buyer

A cash buyer is an individual who purchases real property with nothing but physical money. That is, in exchange for receiving legal title and ownership of a real property, the buyer delivers to the seller actual cash as consideration.

Cash is money in its physical form. It is a form of currency that can take the shape of either coins or bank notes. The value and currency of cash is dependent on the domicile. That is, in the UK, the approved form of cash currency is the Pound-sterling, while in the US, the approved currency of exchange is the US Dollar. Among members of the European Union (EU) the approved currency is the Euro.

There is an ongoing movement to have society switch from a cash based one to a cashless society. The idea of a cashless society is to have a future wherein physical cash will become redundant and the new means of exchange will be electronic or digital currency. The movement has gradually begun to pick up steam as surveys have shown that 1 in 7 of UK citizens no longer use or carry around cash for transactions.

Advantage of purchasing property with cash

• Most property sellers prefer being paid in cash

Because most property sellers prefer cash transactions which are quicker and cleaner, they usually offer incentives such as discounts to motivate potential buyers to pay cash when the time comes to buy.

Most property owners prefer the smooth, quick efficiency and convenience of selling their property through a cash transaction. A reason for this is that most sellers are aware that a buyer who has been approved for a mortgage loan to purchase property might be eventually denied by the lender of said loan. To avoid circumstances such as this, property sellers are often more eager to transact with cash buyers. Because of sellers’ eagerness to deal with cash, a cash buyer is granted more of a bargaining power when it comes to negotiating price tag on a property, need for repairs on the home, and more.

• Cash buyers are less prone to adverse complications

A property valuation/appraisal can be inaccurate for a number of reasons. A faulty appraisal that yields a low estimate of a property value can lead to a lender reducing the loan sum offered to a borrower/buyer. And this can happen after a seller and buyer have already agreed on a price. This means the buyer will no longer have the means to pay for the property since the lender has refused to loan the requested sum. A cash buyer on the other hand will not have to face any such problems or be in anyway at the mercy of a lender.

• Cash buyers get to save time and money when purchasing a property

Making a cash purchase of a property means the entire process will occur at a lower cost to the buyer. If a buyer seeks to finance a property purchase via mortgage loan, the interest on the loan is a separate cost that over the years can amount to double or even triple the property’s original sale price. Cash buyers do not have to worry about such extra costs, and are also saved valuable time because they don’t have to bother searching for a favourable lender or waiting on the approval of a mortgage application.

• Cash buyers enjoy greater peace and convenience

Cash paid for a property can be a single final payment which will satisfy the transaction and be the end of it. This means the home will be owned outright by the buyer who will never have to worry about settling a mortgage loan. Paying cash also vests a buyer with immediate equity in the house.

Other advantages include;

• Cash buyers get to avoid unnecessary costs such as bank valuation costs, closing costs, mortgage application fees, and so on.
• Cash buyers rarely have to bother about losing their home. This is because they haven’t submitted their property as collateral for a loan.
• Paying cash eliminates the worry of the rise and fall of interest rates affecting repayment of a mortgage loan.

Disadvantage of purchasing a property with cash

• No liquidity. Upon paying a huge sum to purchase a house, a buyer is likely left with very little or nothing in the bank. This can place a buyer in an uncomfortable financial situation.
• There’s no tax advantage. Paying cash upfront will mean a buyer cannot benefit from any tax deductions. But buying a home with a mortgage loan comes with favourable tax benefits.

How to buy a home with cash?

Buying a home with cash is fairly straightforward and can be accomplished with the following steps;

• Notify the seller: After finding a satisfactory property, the first step a cash buyer will need to take is communicate to the seller his/her intention to buy. The buyer must make it clear to the seller that it will be a cash purchase.
• Come to an agreement: Necessary negotiations will transpire between the buyer and seller concerning the price of the property, what repairs are necessary, and other important details. To do this effectively, the buyer will first inspect the property thoroughly.
• Appraisal: To ascertain that the price being offered for the property isn’t excessive, a buyer will have an appraisal/valuation done on the property. The result of the valuation will inform the buyer of the true market value of the property and thus how much should be paid for it. In order to determine a property’s true market value, a professional valuator will take into consideration factors such as the property’s size, the condition of the property (both on the inside and the outside), and the value of similar neighbouring properties.
• Closing: The final step of the process is the closing. After the appraisal/valuation, checking the property at the land registry to ascertain its title, and all other necessary activities, the next step is signing the contract of sale. This will be done on the closing date and concluded with an exchange of documents followed by the seller being presented with the agreed cost of the property. Cost of the property can be delivered as actual cash, a cheque, a wire transfer, or any other means accepted by the seller.

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