PROPERTY NEWS - When faced with two distinct offers on a property – a lower cash offer versus a higher offer contingent on a mortgage loan – sellers often find themselves at a crossroads. While the allure of a higher price is strong, the certainty and speed of a cash transaction can be equally compelling.
Tiaan Pretorius, manager of Seeff Centurion says understanding the nuances of each scenario is crucial for sellers to make an informed decision that aligns with their selling goals.
A cash offer generally gives the buyer more negotiating power to potentially secure a lower purchase price.
Pretorius says this is usually as the buyer views the benefits of a cash offer as an extra incentive which will motivate the seller to accept.
These benefits include reduced risk as the funds to purchase the property are already secured. It also generally means a faster transaction as there are no pre-conditions which need to be met.
Cash offers are therefore often preferred by sellers who need to sell quickly, even if the price is lower. Without the need for bank financing, the transaction timeline is drastically shortened, often allowing for a faster closing period and less uncertainty for the seller.
The risk of not accepting the offer might also be that the buyer would simply move on to the next most suitable property.
He says if the seller needs a quick and hassle-free sale, perhaps due to a relocation or an urgent need for liquidity, then a cash offer, even at a slightly lower price, would be an attractive option. It eliminates the anxiety associated with waiting for loan approvals and potential complications.
If on the other hand the seller has a particular price in mind, and is prepared to hold out for the right price, then a higher offer contingent on a mortgage loan could be an attractive option.
It does, however, take longer, and comes with an element of uncertainty as the transaction hinges on the buyer successfully securing financing from a bank.
That said, these days a formal pre-approval, which Pretorius says is vital for anyone looking to buy, can serve as a safeguard for the seller.
Final approval, however, would remain a condition of the sale. If the purchaser is unable to secure the bond for the full purchase price, the transaction could be delayed or jeopardised if the buyer is unable to fund the shortfall.
Ultimately, it will depend on the circumstances and priorities of the seller. Pretorius says the majority of property transactions are financed by way of mortgage loans.
If maximising the sale price is the top priority and the seller has the flexibility to withstand potential delays and risks, then pursuing the higher offer with a mortgage contingency might be preferred.
If time is of the essence, then the cash sale may be preferred, even at a lower price. The loss on the sales price may be outweighed by what the seller could save in terms of the property holding costs and the convenience of a quick sale.
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