How much of a premium does a Cash offer deserve?

[maranatha111]

Got a house for sale which I recently inherited. Never sold a house before. 3 offers of 1.1M which is asking price. Two are subject to finance, one is cash.

All things being equal here, Cash offer gets it obviously but What price do you guys and girls think offers subject to finance need to pay over and above a cash offer to offset the risk of finance falling thru?

 

[jsw3883]

@maranatha111 Its a good question but also symptomatic of why buyers get frustrated. If u are satisfied at 1.1 million and happy to do the deal, ensure the other offerers know theres a better one on table and why. Give them a chance to increase offer and in unconditional terms with timefrane and if not forthcoming then close with 1.1million unconditional purchaser. Advise your 1.1 million unconditional of this as well aka they are in drivers seat, there'll be 1 more round (theyd expect this too).That way u give all a chance but also put interested parties outta their misery if they cant improve on your current and they can move on. Transparency and communication is key, avoid smoke and mirrors, silent auctions and withholding information. Euther way youll be satisfied with outcome, no sellers regret please.

 

[maranatha111]

@jsw3883 Thanks Wags. I think this is a very fair and level headed way to approach it.

 

[jsw3883]

@maranatha111 No probs at all and goooood luck with it.
And i how u called me wags btw

 

[prodigy]

@maranatha111 1.1m it won’t matter too much. I’m assuming with 3 bids it’s fair value and likely that they’ll get finance.

 

[dewguru]

@prodigy When we bought our first place the lender told us if for whatever reason we decided we didn't want the house, just call them and they will deny finance so that we get out of it with no penalty. So the subject to finance clause has other risks.

 

[praiseyehoshua]

@dewguru Exactly what my broker said to me as well

 

[fatimaf]

@dewguru Lender or broker? That would be one loose home loan specialist to say that.

 

[dewguru]

@fatimaf It was the person at the bank, we didn't have a broker for the first place.

Edit: it was also 2015, not sure if things have tightened since then.

 

[kisame2602]

@dewguru I think things have changed - we bought last year and going over these things with the broker they said people need to provide evidence their finance has been officially denied by the lender. Unless people want to forge a letter, I doubt this would work anymore.

 

[dewguru]

@kisame2602 The lender does provide that, they don't have to give a reason for the lender denying the finance, just that it was denied.

 

[kisame2602]

@dewguru A lender won’t just provide a legal document stating that finance was denied when it wasn’t - that is illegal - they may provide evidence it was withdrawn. If the other party opted for legal action, they would potentially need to produce evidence on why this was denied.

Otherwise, what use would the law have at all if you could simply state it was denied and move on?

 

[dewguru]

@kisame2602 Because it depends on how the clause is written. If finance is denied, the reason is generally completely confidential. It is important to have the clause say finance from a lender of choice of the buyer though. Or you're forced to go with another lender. This is why people like contracts without a finance clause.

 

[kisame2602]

@dewguru Interesting. That seems completely backwards to me, but hey, most of the property industry in our country is.

For instance - the vendors when we bought didn’t “submit a form in time” - so it was their fault for settlement delayed by a day, and they turned around and charged us for the settlement being delayed. Completely backwards.

 

[dewguru]

@kisame2602 I think a lot of this depends on the "norm" in the state. Like stricter finance clauses like I've had are common in WA. Apparently they aren't over east where it's been hard to get a place for years. I remember finding out that people in Sydney didn't put subject to finance in their contracts and thinking it was insane. We also do our contracts differently over here in terms of what counts as a submitted contract.

 

[rronald_25]

@kisame2602

A lender won’t just provide a legal document stating that finance was denied when it wasn’t

Correct. So they will deny it, and then send a letter saying it was denied. All true and legal.

 

[kisame2602]

@rronald_25 On what grounds would they deny it? So you’re saying a lender will issue a legal document officially rejecting a home loan application just because someone asks them to? That makes no sense. Someone needs to make a reasonable attempt to obtain finance - not doing so can leave them open to trouble.

Then this would also be formally listed on the persons credit file, potentially impacting their credit file.

 

[rronald_25]

@kisame2602 The lender doesn't have to give grounds.

I understand you think buyers should make a best effort to get the finance approved, and you don't approve of finance being denied for anything other than actual financial risk the bank doesn't want to accept, but nonetheless, this is how it is.

This is not a conversation about morality, but legal requirements.

 

[anderlee]

@kisame2602 It's very very easy.

"I had an unexpected lifestyle change, my living expenses are now X+5/10/50"

"My partner has reason to believe their hours are going to be reduced"

"We are now expecting a baby, my partner will not be working in 9 months"

Lender will officially deny finances now due to you being unable to service the loan.

 

[kisame2602]

@anderlee Honestly…that seems insane to me that people can just make up whatever they want to try and get out of something they signed. Hence, it’s just clicked with me as to why vendors don’t like that clause in contracts.

For my own curiosity, are there ever scenarios where a vendor has gone after people who do this for wasting their time and find out it was all made up? And won?