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Cash offer red flags

Most cash buyers are what they say they are. The ones who are not share a few habits: contracts they can assign, long inspection periods, tiny deposits, and prices that drop after you sign. Here is what to look for.

01In the contract

  • An assignment clause. Words like "and/or assigns" after the buyer's name mean the contract can be sold to someone else. That is how a wholesaler works: they tie up your house, shop the contract to investors, and either close with someone you never met or walk away. Ask that the clause be struck, or require a deposit large enough that walking away hurts.
  • An inspection period longer than 7 to 10 days. A cash buyer who has seen the house needs a week to confirm. Three or four weeks is a free option on your house while they look for a better deal, or a buyer for the contract.
  • Earnest money under about 1% of the price. A $500 deposit on a $300,000 house costs the buyer nothing to forfeit. Serious buyers put down 1 to 2% and agree that it becomes non-refundable once inspection ends.
  • A clause that lets the buyer reduce the price after inspection for any reason, with no cap. Some adjustment for a real surprise is normal. An open-ended right to renegotiate is not.
  • A closing date far in the future, or one that the buyer alone can extend.

02In the behavior

  • Pressure to sign the same day. A real buyer's offer is good tomorrow. One that expires at midnight is designed to stop you from getting a second number.
  • No proof of funds. Ask for a recent bank statement or a letter from the bank, in the buyer's own name or their company's. A buyer who will not show it may not have it.
  • An offer that drops sharply after the walkthrough. Some adjustment happens. A price that falls $30,000 the day after you take the house off the market, for issues that were visible at the first visit, was never the real offer.
  • Vagueness about who is buying. If the person on the phone cannot say whether they or someone else will be on the deed, assume someone else.
  • A refusal to use a title company or escrow. Every legitimate cash sale runs through a neutral third party that holds the money and records the deed.

03If you are behind on payments

Owners facing foreclosure draw a specific kind of attention. Some of it is honest: a fast sale can be the right exit. Some of it is not. Watch for anyone who offers to "take over your payments" while leaving the mortgage in your name, who asks you to sign the deed over now and promises to pay you later, who proposes a sale-and-leaseback with a buyback you are unlikely to afford, or who wants you to sign a power of attorney. Each of these can leave you with no house and the debt still attached to you.

If you are behind, a conversation with your servicer about a forbearance or a repayment plan is free and comes before any sale. If a sale is the right move, a licensed agent or a real estate attorney can run it on a short timeline, and a cash buyer who is legitimate will have no problem closing through them.

04What a good offer looks like

A named buyer, proof of funds, a deposit of 1 to 2% that goes hard after a short inspection, a closing date within three weeks, a title company you can call, and a price the buyer can explain in terms of what the house will be worth and what it will cost to get there. How cash offers are priced shows what that explanation should sound like, and when a cash offer is the right call helps you decide whether to take it at all.

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Related

  1. Cash offer: the full guideWho cash buyers are, what they pay, how the process runs from the first call to the wire, what the speed costs you, and when a listing is the better move.
  2. How cash offers are pricedEvery cash offer starts from what the house will be worth fixed up, then subtracts repairs, holding costs, selling costs and the buyer's margin. Here is the formula and why two offers on the same house differ by tens of thousands.
  3. When a cash offer is the right call, and what it costs youA cash offer is fast and certain. You skip repairs and showings. You also net meaningfully less than a traditional sale.

This path, in order

Cash offer: the full guide

  1. 01When a cash offer is the right call, and what it costs youA cash offer is fast and certain. You skip repairs and showings. You also net meaningfully less than a traditional sale.
  2. 02How cash offers are pricedEvery cash offer starts from what the house will be worth fixed up, then subtracts repairs, holding costs, selling costs and the buyer's margin. Here is the formula and why two offers on the same house differ by tens of thousands.
  3. 03Cash offer vs. listing: what you actually netA listing brings more, then gives some of it back in commissions, repairs, concessions and carrying costs. A cash offer brings less and gives almost nothing back. Here are the net numbers side by side.
  4. 04The cash offer timeline, from offer to fundedMost cash sales close in 7 to 21 days. Here is what happens in each stretch, how your mortgage and any second lien get paid, when you have to be out, and what can slow it down.
  5. 05Taxes when you sell, in plain termsMost people who sell the house they live in owe no federal tax on the gain, up to a limit. Here is the shape of the rule, what basis means, and how inherited houses differ. The outline, without the advice.
  6. 06Cash offer red flagsYou are here