Is Cash Really King?
By Jim Palmer Jr.

It is a common practice for loaded investors to wave cash (figuratively) in the face of a seller, as if that cash entitles them to a significant discount when purchasing property. That doesn’t mean the buyer will bring a duffle bag full of big bills to the closing table, but it does mean they have liquid funds immediately available. Since most cash buyers are able to close quickly, some sellers may be enticed to take less than offering price in exchange for a shortened escrow period, but for the most part this type of buyer will be treated the same as a buyer who needs to obtain financing. Here is the reason why.

In a competitive market when buyers aren’t as rare as the Spotted Owl, sellers can usually afford to wait for the financing process to culminate if it makes a significant difference in the amount of proceeds they will receive (versus a lower cash offer). In other words, why give a buyer a huge discount just because they have cash when the end result would be the same if the money came from a loan?

Cash doesn’t seem to carry the same weight that it did decades ago. In some cases it seems to even be a burden to purchasers. Since the days of the Patriot Act the rules have changed. Lenders must be acutely aware of where all down payment funds come from and must take great care to document such.

In one example, a buyer made an offer on a property, stating that they had over $100,000 in cash as a down payment. That seemed like a no-brainer to the seller! They readily accepted the offer since the buyer had a chunk of cash and only needed to finance a portion of the purchase price. When it came time for the lender to get serious about verification of those funds, they found that the buyer did not have the money in a bank account. Instead it was in a safe deposit box in crisp $100 bills. This fact held up the financing for over 60 days while the money “seasoned” in a bank account. This seemingly cumbersome rule was to assure that the buyer was legit and was not using this purchase to launder money.

If you still think cash is king then try walking into your bank to withdrawn all of your money in large bills. They probably don’t even have that much cash on hand!

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