8 July 2022
Buying A Property With Cash
Property sellers (or their estate agents) looking for a speedy sale will often advertise for ‘cash buyers only.’ It means they want buyers who do not need to borrow money via a mortgage and are in a position to proceed.
Are there advantages to being a cash buyer or selling to one? There are some common misconceptions about buying with cash, and it is important to be clear what it means.
Cash Buyer – Meaning
A cash buyer is someone who can finance their purchase without a mortgage or selling their own home. They must have enough money available to buy the property at the time they make the offer. For instance, they might have already sold their home and be renting, in order to be able to act quickly in a fast-moving market.
If you are selling your home, your estate agent will confirm how a proposed buyer will pay for it. They will usually check the bank statements of a cash buyer for ‘proof of funds’.
Advantages Of Being A Cash Buyer
Cash buyers are attractive to sellers because they can proceed quickly and do not have to wait for a mortgage or for their own sale to complete. There is less risk of the sale falling through. There are no lender requirements to satisfy, and the sale is not dependent on linked transactions. Cash buyers will often try to use this to their advantage, and negotiate a lower price or other benefits.
Cash buyers may also have a wider range of properties to choose from, for instance being able to buy at auction. They can also buy a property for which no mortgage is available, e.g. with a non-standard construction or with structural or title problems.
Keeping Your Investment Safe
Where a buyer is buying in cash, there are still checks to do to ensure that the transaction is safe for the seller:
- The buyer must provide proof of their identity and comply with anti-money laundering regulations, e.g. current passport or driving licence, recent council tax or utility bill.
- The buyer will also need to show the source of funds. The seller’s estate agent will want to see evidence, and the buyer’s solicitor will need to confirm the funds are from a legitimate source, to comply with legislation aimed at reducing criminal activity. For example, if the buyer is funding the purchase from savings, they may ask to see bank statements showing regular salary payments into the account and the savings building up.
- Fraud awareness. Occasionally, a cash purchase is indicative of property fraud or money laundering. The checks carried out by the seller’s solicitors helps protect the seller from complications which could arise if the buyer is not legitimate.
Due Diligence
If you are a cash buyer this should allow you to proceed quickly and perhaps negotiate a better price for your purchase. However, be wary of any pressure to complete before you are ready. The same searches and investigations into title need to be carried out. Your solicitors can advise you of the risks involved and, if necessary, ways of mitigating this, for example by taking out indemnity insurance.
If you are a seller, your estate agent must check the credentials of any cash buyer before formally accepting their offer. This is particularly important if you are tempted to sell to a property companies – while some are genuine, others are only middlemen for third party investors, and others may use dubious tactics such as making an initial high offer then reducing it before the sale goes through.
Finally, whether you are buying or selling, the progress of your transaction will be determined by its slowest part. If you are a cash buyer looking to move quickly, then you could still encounter problems if your seller needs to complete the purchase of their new home first.
In many ways, a cash only purchase will not be different from any other. Whether buying with cash or relying on a mortgage, the motivation of the parties and their conveyancers will largely determine the speed and smoothness of the transaction.
Notes
For more information on buying or selling a property, click here.