Why is a Cash Offer Better
Than One with a Mortgage?

For each of the past three years, half as many real estate transactions have closed as the average for the past 20 years in Summit County and other Colorado resort areas. This is what happens when mortgage money dries up and the market becomes reliant upon cash.
Sellers often don’t understand the tremendous advantages of a cash sale. Mortgage qualification was so routine it used to be the same as cash. Not any longer.

Cash buyers have a negotiating advantage because no mortgage means no loan approval is required, no underwriter needs to review the property and there may not be an appraisal.
Cash buyers, though, may reserve the right to pay for an appraisal and to terminate or renegotiate if the property doesn’t appraise for the sale price. They exercise this option about half the time.
Sellers who overprice their property, ‘cause it’s “special”, have to know that even if a cash buyer agrees to pay too much, ‘cause it’s so “special”, the property won’t appraise. Then the seller must renegotiate the sale based on a current appraised value with a buyer who knows he screwed up and probably won’t make that mistake twice.
This has happened to me three times in the past year. Each time the sale went through after renegotiating a price higher than the appraisal, but lower than the contract price… each one a miracle. Your results may vary.
Offers involving a mortgage are always a roll of the dice, no matter how much money the buyer puts down.
An unknowledgeable loan underwriter might Google the address, see rentals in the property or next door and decline the loan. The property manager might fill out the lender questionnaire wrong and the hapless underwriter believes that the place is an investment property. Or the buyer might just lose his job and terminate the contract for no loan approval.
All of these have happened in the past year, too. Only the terminated employee’s sale didn’t close. For the others we had to scramble to find a lender who actually understood resort market lending.
The lessons are clear: a cash offer is worth more than one involving a loan right from the start. So an offer with a loan needs to be higher to compensate the seller for the added risk if it fails and the property has to be sold again.
Loans need to be with a local lender who has had success recently with the same kind of property in the same area. There are sources for resort loans. But the mortgage originator has to know where to place the loan for this specific property.
Your buddy in Denver who did your house in Highlands Ranch is a nice guy, but could be out of his league in Summit County.

Go to http://www.chuckleathersre.com/ to see all Summit County listings