Q: I’m trying to buy a house right now and I’m frustrated by the number of houses that say they are taking only all-cash offers. I’m really looking for a great deal, and when I e-mail the listings to my agent, a lot of times she’ll say the sellers are looking only at cash buyers. We’re talking hundreds of thousands of dollars here; who do they think has that kind of cash lying around?

Also, do these people ever change their minds? Should we be making offers on them, even though I’m trying to use an FHA loan?

A: I feel your pain. It does seem as though every quarter, the proportion of homes listed on the market that are infeasible for the average homebuyer to actually purchase grows.

Interestingly enough, the National Association of Realtors 2009 Profile of Home Buyers and Sellers revealed that 92 percent of home purchases are financed using some sort of mortgage. That sounds like everyone, but in reality means that 8 percent of buyers are purchasing real estate with all cash. (In my experience, these are mostly investors and buyers of homes at the very high or low end of an area’s price range.)

Put yourself in the seller’s shoes. Their aim is usually to sell the place, and to get as much for it as possible. Economically speaking, the best way to do that is to offer the home to as broad a field of buyers as possible. As we’ve seen, restricting the prospective buyers for your home to those who can pay for it in cash restricts your field of buyers — and your chances of selling, and the price the home will likely command — to the narrowest field of them all.

So, why do they do it?

Unfortunately for you and for them, in the vast majority of instances, sellers who restrict their listings to all-cash offers are not doing so because they want to but because they are aware that the property is not eligible for mortgage financing. There are a number of property types to which this applies, most often condominiums or townhomes where the homeowners association (HOA) is in litigation, is comprised heavily of tenant-occupied units, or is in financial distress (as when more than 15-20 percent of the units’ owners are delinquent on their HOA dues).

With single-family homes, "all-cash" listings are most often homes that have no kitchen — as where a remodel was halted in progress, after the kitchen was gutted and before it was replaced — or are newly constructed homes where construction was not finished. 

As bad as it is to restrict the property to cash-only buyers, it’s worse to tie the property up by putting it into contract with people who can’t close the deal. By doing so, the seller runs a high risk of losing out on the buyers who can close the deal.

And, as for why it seems like these places seem to be the best deals going, they often are! These sellers know that to lure an all-cash buyer, they have to have the place priced more attractively than almost anything else out there. Cash buyers know that more than half of all failed home-sale transactions fall apart over mortgage financing issues. On a home that has issues that make financing tough or impossible, all-cash offers are twice as likely, or even more, to close as a financed offer. That gives cash buyers far superior bargaining power over non-cash buyers and over the sellers whose homes are not amenable to financing.

Accordingly, homes that require cash to close the deal are often listed at massive discounts from what their fair market value would be if the home could be financed.

To your question of whether these sellers ever change their minds, that depends on why, specifically, they are restricting offers to those who are paying cash, which your agent can find out. But it also depends on whether and why you believe you can overcome the property’s issues and obtain financing, often in a situation where other buyers have tried and failed. This is often unlikely with an FHA loan, which has more strict conditions and HOA guidelines than a conventional (non-FHA) loan.

The one instance where I have seen sellers seeking cash-only offers look at others is where the buyer is planning to purchase the home with an FHA 203(k) rehab loan, which not only allows for some exceptions to the FHA guidelines regarding the home’s condition, but also provides financing for the buyer’s planned repairs. These loans take about twice as long as a "regular" FHA loan to close escrow, but if a seller has no all-cash bites, he might be amenable to your purchase of his home with such a loan.

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