“Cash” Offers & How to Advise

Florida’s Hot Housing Market

Temperatures in Florida aren’t the only thing that is hot right now. The real estate market in Florida is equally hot as Buyer(s) continue to move into Florida. With the competitive, frenzied nature of the market, Buyer(s) who are offering to purchase homes with financing frequently find themselves losing out to cash Buyer(s). When faced with a multiple offer situation, Seller(s) are more likely to accept a cash offer over a financed offer, reducing contingencies and getting to the closing table as fast as possible. Recently, we have been receiving an increased number of “cash” contracts, but a few days later, we will receive a title order from a lender on the same property. It is important to note that Berlin Patten Ebling is not encouraging the writing of a cash offer, with the Buyer then seeking financing. Nevertheless, we want to educate our blog readers on current real estate matters. Below are a few common questions that occur when navigating these “cash” offers:

Q: Can a listing agent refuse access for an appraisal?

A: No, the listing agent cannot restrict access according to Section 18L of the Contract, which states that the Seller shall, upon reasonable notice, provide utility service and access to the property for appraisals and inspections, including a walk-through (or follow up walk-through, if necessary) before Closing. You’ll notice that appraisal is not capitalized and, therefore, not a defined term mentioned in Section 8(b) of the Contract.

Q: What is a Buyer waiving when offering a cash transaction but obtaining financing?

A: Buyers need to be aware that there are no financial contingencies (as described in Section 8(b) of the Contract), even though the Buyer is obtaining a loan. If the offer is written and accepted as a cash offer, then Section 8(a) applies, which indicates that the transaction is cash with no financing contingency. That means no appraisal contingency, even if the appraisal comes back extremely low. That also means no closing date extension if the closing funds from Buyer’s lender are not available due to Consumer Financial Protection Bureau delivery requirements. And that means no termination right if a property-related condition of a Loan Approval has not been met (i.e., the binding of insurance, repairs, etc.).

Q: What is a Buyer risking by utilizing financing in a cash transaction?

A: Buyers need to understand that the Contract is written as if a Buyer will pay cash and close on the Closing Date. Suppose that a Buyer fails, neglects, or refuses to perform Buyer’s obligations under the Contract. In that case, a Seller may elect to recover and retain the Deposit. Or the Seller may proceed in equity to enforce Seller’s rights under the Contract. If a Buyer requests a Closing Date extension and the Seller refuses, the Buyer is expected to pay cash or risk default under the Contract.

 

As you can see, there are risks associated with writing a cash offer for a Buyer when a Buyer is planning to obtain financing. As an agent, if you are working with a “cash” buyer, we advise educating the Buyer about the potential pitfalls and worst-case scenarios. Additionally, it would help if you document all correspondence with Buyers in writing to ensure that there are no misunderstandings as to the dangers presented. Finally, should you encounter a situation where you are working with a “cash” Buyer or have questions or concerns regarding the Contract when working with a “cash” Buyer, we urge you to consult with your local real estate attorney for additional guidance.

Sincerely,

Mallory Bauer, Esq. mbauer@berlinpatten.com

Mallory Bauer practices in the areas of residential real property transactions and condominium development work, including but not limited to real estate closings, contract and leaser preparation, negotiation, and seller financing.

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