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GET A CASH OFFER NOW
From an A+ BBB rated business.
Selling a home for or buying a house in cash can be a quick, painless process (especially compared to standard, financed sales). But some things can affect how quickly a transaction can close. Below we’ll lay out the steps involved in a typical cash sale – primarily from the seller’s perspective. We’ll also list situations that have the potential to delay the process – most of which are avoidable if you’re proactive about handling them.
Disclaimer – The information on this page is intended for general informational purposes only and not to provide legal advice.
There are several steps to selling / buying a home in cash:
Both the buyer and the seller will need to negotiate terms of the sale that are acceptable terms to both parties. These negotiations can involve things like the sale price, closing date, earnest money, payment of closing costs, whether there any contingencies of the sale, etc.
Verifying proof of funds
A seller should always verify that a cash buyer legitimately has access to the funds needed to purchase the home; this is called “proof of funds.” Proof of funds may be provided by bank statements or be in the form of a letter from a private lender (typical for “cash” deals – more on that later). You should always contact any private lenders to verify the validity of pre-approvals.
Signing the contract
Always make the buyer use the standard Texas Real Estate Commission (TREC) 1-4 contract (as AMI does). Anyone can use it (not just Realtors), and it offers protections for both the buyer and seller. One page contracts leave many loopholes that typically benefit the buyer more than the seller.
Opening of title
A title company is a neutral third party who acts as a “middle-man” of sorts during the sale. The title company’s job is to ensure the property the buyer is purchasing is as described in the sales contract (free of encumbrances or other issues that may affect the property). They also verify that the person selling it has the legal right to do so and that any liens on the property are found and settled at closing. The sale can go as fast (or slow) as the title company can/does.
Delivery of earnest money to title
Earnest money is money put down by the buyer as a promise to follow through with the contract. Cash buyers need to be willing to put their money where their mouth is. 1% of the sales price is the typical amount for earnest money in Texas. If someone isn’t willing to put down 1% in non-refundable earnest money, it’s likely because they’re not sure if they can close on the home. The sale could fall through down the line as a result. If a buyer fails to complete their responsibilities in the contract, the earnest money is usually forfeited to the seller as “damages.”
Getting through the option / inspection period
An “Option Period” is unique to Texas real estate. During the option period, the buyer has the option to go through with the purchase at the terms specified should they choose to continue past the option period. The buyer can terminate the contract for any reason during the option period and receive a full refund of their earnest money. This period is most typically used to allow the buyer to perform inspections of the property.
If your cash buyer is an owner-occupant, they will likely want an option period of 5-14 days to have inspections performed. Experienced investors typically will request no option period (they usually know what to look for, and they’re numbers after walking through the home). Or they require a very short option period that is only 3 to 5 days long if the house contains components such as septic systems or wells that require specialists to inspect.
The longer the option period, the longer the buyer has to back out with no adverse financial consequences. The lack of repercussions to a buyer for bailing on the sale during the option period is why no or short option periods are preferred if you need a fast, cash sale.
An appraisal determines the market value of the home. A state-licensed appraiser performs appraisals. Buyers who plan to purchase the property as owner-occupants may want to have these done; investors like AMI typically don’t.
Closing is when you sign all the documents required to transfer the home from your name into the buyer’s name. Once the closing paperwork is complete, the title company verifies they have all the needed documents. After verifying that, they transfer the money from the buyer to the seller, pay off any liens on the home, and give the seller any remaining proceeds from the sale via wire or check.
So how long does it take to close on a house when it’s purchased in cash?
Time length varies depending on a variety of factors. In the best of situations, a cash sale can close in 4-10 business days. However, this assumes there is a single living individual on the title, and that payouts are already in hand or provided quickly by the lending institutions involved. This timeline also assumes no additional liens on the home aside from the mortgage, and that the buyer can move quickly (as AMI does).
Ensuring clear title
First, understand that even if a buyer is purchasing a home in true cash, the sale will still need to go through the title insurance and underwriting process. The title process can take anywhere from less than a week to several months – depending on how many issues are found by the title insurance underwriters to be associated with the home. The average time frame is 2-3 weeks. Buyers like AMI who have excellent relationships with their title companies can often push to get title research done much quicker when needed.
Things that can slow the process down:
Not being honest with the buyer
Be upfront with your buyer if you have additional liens, another person that should be a party to the sale, or you’re behind on property taxes or HOA dues. The title company will likely find the issues, and it is best to tackle those items head-on from the beginning and get them cleared to ensure the fastest sale possible. Also be honest when filling out your Seller’s disclosure. The Seller’s disclosure survives the sale in Texas, and not disclosing an issue with the home you knew about at the time of the sale could create legal problems for you later.
The longer the option period, the longer the buyer can back out of the sale without any financial or legal repercussions. To ensure a quick sale, you want no or a short option period, so that if the buyer plans to back out, they make that decision quickly. This way, if the buyer fails to purchase the home for any reason after the option period, their earnest money will compensate you for the failure to close.
A low appraisal
If the home is appraised, and the appraisal value is less than the sales price of the home, the buyer may request a reduction in sales price to the appraisal value. While the seller is not obligated to agree to a reduction in the sales price, the sale could fall apart if the parties fail to agree on pricing if a home “under-appraises.” Depending on the terms of the contract and whether or not there were any contingencies to the sale, a buyer may be entitled to have their earnest money refunded over a low appraisal.
A deceased person being on title
When someone deceased is on the title or deed, additional verifications are required. The extra documentation needed varies depending on if the estate has gone through probate. Whether or not all the heirs are verified and agree to the sale terms can affect the sale speed as well. Whether or not the deceased individual had a standard mortgage or a reverse mortgage, and more can come into play as well. These are not impossible issues, but they do take extra time.
Additional liens aside from the mortgage (especially if they’re not disclosed from the onset to the buyer)
Each lien on the property has to produce a payoff to the title company for the sale to close. There are intricacies here to obtaining the payouts promptly, such as how the payoff is requested. (Mortgage companies will only snail mail or fax a payoff – fax is always faster.) It is also common for some lien holders (such as HOAs or other liens handled by law firms) to additional charge fees to provide rush payoffs.
A nasty divorce
Selling during a divorce in and of itself isn’t an issue when it comes to how fast a home sale can close, but when two former spouses are fighting each other throughout the process for the sake of fighting, it can cause delays. The sale will occur quickest if each party can put aside their differences to ensure a quick sale.
An active bankruptcy
If the seller is currently in the process of bankruptcy, they may need the court to sign off on the sale. More details on selling during a bankruptcy filing can be found here.
While this article focuses on cash sales, we feel it’s still important to note that if your buyer is obtaining financing for the home, it can slow the process down. Many “cash buyers” use what is referred to as “hard money” to purchase homes. Hard money lenders move much faster than standard mortgage lenders, but they can still slow down the process. Typically financing can take anywhere from 10 days to 6 weeks – depending on the type of lender, their relationship with the buyer, and their requirements to fund the loan.
Some investors use “private money” to purchase homes “in cash.” Private money lenders tend to move much faster than other types of lenders and typically do not cause any delay in the sale past the standard title underwriting process.
If you are looking to sell your home fast, contact us to get a cash offer on your home. We don’t use hard money financing, typically request no option period, no appraisal, and have an excellent relationship with our preferred title company. These factors allow us to push the process at the fastest possible speed. Our ability to close fast can be helpful for sellers who need to sell their homes before a certain date due to an impending foreclosure or other financial issues.