How to calculate discount when paying in full cash ?

Question

How do you negotiate when paying full cash for a $400k SFH ?any thumb rule(s) on how much to bargain for ?

Nathan Grabau · Answer

Unless you are waiving things like inspections or appraisals, a cash offer in itself is not really of that great of a dollar value to a seller. Typically a cash discount exists because a property is not financeable, your loan servicing company say that the condition is so bad that if they foreclose on the property, they believe they will have a very hard time selling it.

Now if you are willing to close in say 6 days instead of 30-45, and are offering the property as is without an appraisal, I would subtract out the cost to fix things against comps at a 2.5-3x multiple for smaller items and a 1.5x multiple for larger items. If it has a very dated kitchen, and you are comping it against a property with a nicer kitchen, and the kitchen reno is going to take 25k, I would reduce the offer by 40k. If it just needs new carpet and paint and those items are going to cost 7k, I would take the purchase price down by 20-25k.

If you send me a message about where you are looking, I can get you in touch with top producing Keller Williams agent in that area, and I think they will probably save you more money than the seller is going to end up paying them.

Tom Fidrych · Answer

I don't think a cash offer by itself entitles you to a discount. Why would I accept a $400k all cash offer over $425K? Perhaps if time is of the essence or I thought the bank financed buyer might not qualify. In the end I'll be getting a check from the title company.

If, as Nathan Grabau pointed out, the property is not able to be financed. Often you will see listing's that have a "remodel" in progress and the owner may have run out of money. been red-tagged, or had other situation that forces them to sell. Since this property is torn apart and not bank lendable, the pool of buyers has shrunk considerably. In such case, you may be able to pick it up at a discount that far exceeds the cost of finishing the remodel.

With the increase in interest rates and decrease in home values, such remodel-in-progress opportunities may become more common.

Mason Hickman · Answer

Having the ability to waive financing contingency which can fall apart for numerous reasons( appraisal, lost job, etc) is definitely worth something to any seller. Two equal offers one that is cash and the other that is financed, the seller will take the cash all day long. Therefore, it’s worth more than a financed offer. How much of a discount, you ask? You’ll find out by negotiating the same as any other purchase.

Eliott Elias · Answer

Your leverage is quick closing and no appraisal.

Zackary C Dunn · Answer

Typically, when I get a lower cash offer, I always accept no matter what the amount. With the contingencies the remainder of the amount is paid by check!!!! HAHAHA

Seriously though as an investor and agent I never recommend offering any different based on the cash sale unless other factors are in play, and you are comfortable losing the deal. For example, with cash you can usually close quicker so if you know the home is vacant and has been on the market you have a greater chance of having a low offer accepted with a quick close, inspection waiver, and cash.

How to calculate discount when paying in full cash ?

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