Question: Many buyers in today’s market are purchasing homes for cash. Sometimes cash buyers say they should get a discount because they can settle faster. Is this true?
Answer: It’s likely true in most jurisdictions that cash buyers can settle faster than purchasers who need mortgage financing. However, this is not necessarily a reason for sellers to accept a discounted price.
Let’s start with today’s financing rules. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act lenders have two deadlines when offering a loan:
• First, the borrower must receive a good faith estimate of closing costs within three business days after applying for a loan. This is sometimes called “early disclosure.”
• Second, the rules say that lenders cannot generally close the loan until seven days after the borrower has received the GFE.
Also, there may be a “financial emergency” that allows a borrower to waive the time requirements. However, lenders may be leery of such requests. Why? Worries about missing underwriting requirements that could result in costly payments to investors and regulators.
In effect, it will take a borrower needing a mortgage at least 10 days to close. Because all-cash buyers are not relying on mortgage lenders the disclosure requirements and closing minimums do not apply to them.
Does a quickie closing justify a price discount?
That’s a debatable matter, but the answer for many sellers is no. In selling a property many owners expect that closing will not take place for 30 to 45 days, sometimes maybe a little faster, sometimes perhaps a little slower.
Owners often would much prefer a longer closing so there is reasonable time to pack and move. In an ideal world it would be great to have simultaneous closings so that a seller can instantly go from one home to another with as little time as possible between properties. This becomes easier with a longer closing period.
In some areas you can see street signs that say “We’ll buy your home for cash” and “Close in seven days.” Sometimes such offers come in the mail. While these offers may be attractive for some distressed owners, is it really worth losing thousands of dollars for a faster settlement?
The more important issue for most sellers is not the speed of closing it’s the size of the settlement check. As the old expression goes, “All good things come to those who wait” — and in terms of real estate that usually means 30 to 45 days until closing.
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