The Most Important Questions to Ask a Cash Buyer

Your goal is simple.  You want to sell your Ohio property efficiently, with as little hassle as possible, for a fair price and to a legitimate buyer. 

You have heard that if you work with a cash buyer there are some solid benefits, including:

(1) Cash buyers don’t need a lender to approve of the sale, and lenders require appraisals, slow things down and their involvement sometimes leads to the purchase agreement being cancelled;

(2) Cash buyers can purchase the property as-is without making you do any repairs;

(3) Cash buyers can close in less than 2 weeks and sometimes as quickly as a few days; and

(4) You won’t need to sign a listing agreement with a realtor, pay a realtor’s commission, clean up the home for showings or deal with numerous showings of the home.

However, when it comes time to reach out to cash buyers, you aren’t entirely sure how to sort between the good and the bad cash buyers, or the legitimate and reliable cash buyers versus the scammers.    

This article is designed to help you solve that exact problem, providing you with the same questions I would ask any cash buyer who is interested in buying a property I am selling.  While we deal in the Northeast Ohio real estate market, these questions can be used no matter where you are located.

I also provide the context behind the questions, so you will have a good understanding of why you should ask them. 

TABLE OF CONTENTS

Show Me the Money

• Question to Ask: Can You Show Me Proof of Funds?

Am I Talking to an Actual Ohio Cash Buyer, or a Tricky Salesman?

• Question to Ask: Are you the actual end-buyer, or are you a wholesaler trying to flip the contract or a realtor trying to get          a listing?

Will the Ohio Buyer Provide a Meaningful Earnest Money Deposit?

• Questions to Ask:

  • Do you provide an earnest money deposit in your contract?

  • Will your contract say that if you fail to close, I get to keep your earnest money? 

Does the Ohio Buyer Give Themselves Too Many Ways to Cancel the Purchase Contract?

• Question to Ask:  What contingencies do you include in your purchase agreement? 

How Fast Will the Ohio Buyer Close?

• Questions to Ask: 

  • How long does it typically take you to close? 

  • Is there any reason it should take you longer than typical to close on my property? 

Does the Ohio Cash Buyer Require any Repairs, Appraisals or Inspections?

• Questions to Ask:

  • Will you ask me to make any repairs to the property? 

  • Will your contract say that you will get an appraisal of the property before you close? 

  • Will you require any third-party inspections of the property before you close?

Show Me the Money

Question to Ask:  Can you show me proof of funds? 

First and foremost, an Ohio cash buyer needs to have access to an amount of cash equal to the amount of their offer price (duh).  There is absolutely nothing wrong with asking any potential cash buyer to show you proof of funds.  In fact, this is an industry standard, and all reasonable buyers expect to be asked for this item. 

Even when you have listed your home with a realtor and the buyer is also represented by a realtor, it is entirely normal that a cash buyer will show that they have the cash to back up their offer.  This is typically done by showing a bank statement (or multiple statements across more than one account) with the available funds, with bank account numbers redacted for the buyer’s security. 

So, do not be shy about asking for proof the cash is there.  If a buyer who claims to be a cash buyer is hesitant or resistant to providing proof of funds, that is a red flag. 

NOTE: Many cash buyers work with investors who invest in their deals, so the cash may be coming from their investor network.  They might therefore need a few days to have their investors send them bank statements which they will share with you to prove the cash is available to close the deal.  This would mean you might receive a few different bank statements which all together add up to the total needed to close.  That scenario is not a red flag, but an outright refusal to provide proof of funds is a big concern. 

Am I Talking to an Actual Ohio Cash Buyer or a Tricky Salesman?

Question to Ask: Are you the actual end-buyer, or are you a wholesaler trying to flip the contract or a realtor trying to get a listing? 

If you have ever seen a late-night real estate infomercial about “getting started in real estate with no money,” or listened to real estate podcasts geared toward beginners, you have likely heard about the concept of wholesaling.  

I wrote an article about wholesaling and identifying wholesalers here but in short, this is where people who do not have the cash to purchase a property convince a seller to enter into a purchase contract with them.  The wholesaler then tries to find someone who does have the cash to buy the property. 

In exchange for transferring the purchase contract to that buyer who actually has the cash (which is called an, “assignment,”), the wholesaler receives a finder’s fee. 

Honest wholesalers will of course inform sellers that this is what they are doing and give the seller the opportunity to decide if they want to work with a wholesaler or find a real cash buyer themselves.  

The dishonest wholesalers try to keep what they are doing from the seller and will delay the closing while they try to find a buyer for the property.  If they don’t end up finding a buyer, the wholesaler may simply cancel the contract.  In the meantime, the seller has lost time, has been continuing to pay any costs associated with owning the home, and has potentially missed out on some real cash buyers’ offers. 

The horror story scenario that we have heard more than once involves a wholesaler who used tricky language in the contract which allowed them to keep the property in limbo for very long periods of time while they search for an actual buyer.  You definitely want to watch out for this issue, and always make sure any buyer you work with at least addresses the first three items in this list.

It is also possible that the person you are talking to is a realtor who does not intend to buy the house and wants to list it instead.  As realtors have a lot more legal scrutiny and risk if they engage in deceptive practices (when compared to wholesalers who are not regulated), you should expect to receive a more upfront answer from a realtor. 

Nevertheless, you should always ask if the person you are talking to is a realtor who wants to list your home in order to make sure you are on the same page. 

Will the Ohio Buyer Provide a Meaningful Earnest Money Deposit?

Questions to Ask: Do you provide an earnest money deposit in your contract?   Will your contract say that if you fail to close, I get to keep your earnest money? 

A normal purchase contract will include something called, “earnest money.”  This is a deposit which is handed over by the buyer to a neutral third party called an “escrow company” (escrow companies are the coordinators of real estate transactions) to show the seller that they are a serious buyer. 

The whole point of the earnest money is that it creates a risk of loss for the buyer should the buyer fail to perform their end of the contract, namely, to actually buy your home if the terms of the contract are otherwise fulfilled.  The risk of loss is that if the buyer does not perform, the seller gets to keep their earnest money. 

With the above in mind, you can see how both the delivery of an earnest money deposit, and the amount of the earnest money deposit that a buyer is willing to risk, reflect directly on how serious they are about purchasing your property. 

All legitimate cash buyers should be completely comfortable including an earnest money deposit of at least a few thousand dollars in their purchase agreement.  If the buyer you are talking to is not willing to do this, you need to be concerned that they are trying to make it easy to walk away from the deal and are not serious. 

Does the Ohio Buyer Give Themselves Too Many Ways to Cancel the Purchase Contract?

Question to Ask:  What contingencies do you include in your purchase agreement? 

This question allows you to build on the previous question and further confirm the seriousness of any potential cash buyer. 

A contingency is simply a requirement that must be fulfilled before a buyer is obligated to purchase the property.  In other words, if the requirement is not fulfilled, the buyer can terminate the agreement and not lose their earnest money.   

It is entirely normal for a buyer (whether using cash or financing) to include certain contingencies to their obligation to purchase a property, such as:

(1) Requiring the property to have clean title.  Title research is performed by a title company after you sign the purchase agreement.  If the title research comes back with problems (e.g. undisclosed liens against the home, easements that are problematic and reduce the value of the property, etc.) it is reasonable for a buyer to either ask for a reduced price or to terminate the agreement.

(2) Requiring that there be no expensive government-imposed requirements that are revealed after entering into contract.  For example, many cities require point-of-sale inspections (which we have written about here and here), which is a legally required city inspection that normally leads to a city requirement that several repairs be made to the property.  If the seller did not get the point-of-sale inspection report before entering into contract with a buyer, it is entirely reasonable for a buyer to want to see what repairs the city decides to require so the buyer can estimate the costs and determine if they can still buy the property for the originally offered price, or if they need to walk away. 

(3) Requiring approval of the contents of the State of Ohio mandated disclosure form and any information disclosed by the seller after signing the purchase contract.  The State of Ohio produces a form with questions for sellers to answer about their property and imposes a legal requirement on sellers to provide this form to buyers.  If the seller did not provide this form to the buyer before entering into contract, and the form reveals that the seller knew of a significant problem about the property that is otherwise hidden (e.g. significant termite damage that was enclosed behind drywall), this would be a legitimate reason for a buyer to either request a price adjustment to treat and repair the damage or walk away. 

The above are reasonable contingencies that a buyer may include in their purchase agreement, but what would be unreasonable?

Watch out for broad, open-ended rights to terminate that a buyer puts in their contract, and specifically rights to terminate that are not tied to approval of specific, reasonable items. 

For example, this would be an unacceptable contingency from a cash buyer:

“Buyer shall have thirty days from execution of the purchase agreement to terminate the purchase agreement for any reason.” 

Whereas these are fine:

“Buyer shall have five days from receipt of the State of Ohio mandated disclosure form to terminate the purchase agreement based on new information revealed by the Seller in the form.”

“Buyer shall have five days from receipt of the point-of-sale inspection to request a discount for the cost of newly revealed City-required repair requirements or, should Seller reject any request for such discounting, Buyer may terminate the purchase agreement. 

In the first example the buyer has far too much flexibility, allowing an insincere buyer to tie up the property and cancel later for no good reason.  In the second two examples, the buyer’s rights to terminate are narrower, and require specific, new information to be revealed in specific documents in order to have a right to terminate. 

Note that I always recommend to sellers that they get their point-of-sale inspection (when required) done early (see my article about point-of-sale inspections here), and their mandated Ohio Disclosure form done early as well, so that they can give both to buyers before the buyer even makes an offer.   That way, you avoid a scenario where you do all the work of entering into contract, and only once you are in contract find out the city wants costly repairs, or the buyer finds out you have some undisclosed serious problems with the home revealed in your disclosure form, potentially causing a renegotiation of the purchase price or in some circumstances causing the buyer to walk.

How Fast Will You Close?

Questions to Ask:  (1) How long does it typically take you to close?  (2) Is there any reason it should take you longer than typical to close on my property? 

Unless there is something highly unique about your property, or the city causes there to be delays through point-of-sale requirements, one of the benefits of working with cash buyers should always be a faster than normal closing period. 

It is important to note that the buyer does not have total control over the closing timeframe.  This is because the buyer is relying on a third-party (the title company) to conduct title research and issue the title insurance that is required before a closing can occur. 

Before a title company is willing to issue title insurance in the buyer’s name, they first look at lots of historical records connected to the property to assure themselves that title is clean and worth insuring.  This can take time and can be slower towards the end of a calendar month. 

However, it would be very unusual for a title company to need more than 7-14 days to complete their research.  Once the title research is complete and title is deemed clean, and assuming no new information has been revealed affecting the value of the property after the purchase contract was signed (e.g. in the seller’s disclosures or a point-of-sale inspection), a buyer should not have many (if any) excuses for needing more than a few days to line up the closing. 

Do You Require any Repairs, Appraisals, or Inspections?

Questions to Ask: (1) Will you ask me to make any repairs to the property?  (2) Will your contract say that you will get an appraisal of the property before you close?  (3) Will you require any third-party inspections of the property before you close?

If the answer to any of these questions is “yes,” then you are dealing with someone who is either (a) not an actual cash buyer, or (b) not offering you terms that are typical for an off-market sale to a cash buyer. 

(1) An off-market cash offer should never require the seller to make repairs. 

It can be nerve-racking to list your property with a realtor knowing that you may get offers that include the buyer hiring a private inspector who will create a long report detailing all sorts of problems with your home.  That report then leads to the buyer asking you to incur costs like fixing a roof, repairing windows, replacing electrical and the like, or significantly reducing the price, before they will purchase the home. 

An off-market cash buyer should present a seller with the opportunity to avoid all of that risk and stress, and should make clear that they will not require the seller to make any repairs regardless of what problems they find in the property. 

(2) When you see that someone holding themselves out as a, “cash buyer,” requires an appraisal in their offer, you should immediately be concerned that this is not an actual cash buyer. 

Appraisals are required by lenders so that the lender can confirm that the property is worth enough to justify making a loan.  Legitimate cash buyers rely on their own judgement as to what the property is worth, and not on a lender’s valuation and approval to purchase the property. 

The fact that legitimate cash buyers make the value judgment on their own means working with a cash buyer is more efficient than working with a buyer who is using lender financing, with less risk of a contract cancellation due to the property not appraising for a lender-required value.

Some buyers who represent themselves to sellers as cash buyers actually work with lenders in the background and will therefore give themselves a way out of the contract if the property does not appraise for the value the lender wants. 

You will want to watch out for this in any offer presented to you. 

(3) An off-market cash buyer should not be hiring a private inspector to produce a broad report that results in requests for price reductions for problems with typical elements of any home (e.g. furnaces, water heaters, appliances, electric panels, lights, roofs, gutters, garage doors, driveways, and the like).  An off-market cash buyer should only be requesting inspections for unique and narrow issues.

When a home is listed with a realtor, the process of selling often involves going into contract with a buyer who then hires a private inspector who will look at every detail inside and outside of the home and produce a 20+ page report with lots of commentary and pictures covering all of the problems that were found, big and small.   The buyer then takes that report, shows it to the seller, and will often ask for multiple repairs to be made and/or ask for price reductions to cover the cost of making those repairs.   

As the seller is already in contract with the buyer in this typical process, the buyer is now in a position of leverage over the seller, forcing the seller to decide whether they want to tell the buyer to take a hike, which will cause the property to fall out of contract (which is then displayed to the public online as a “back on market” property which often leads to lower future offers), or to give in to the buyers pressure and reduce the price or make repairs. 

There would be no point working with an off-market cash buyer if you had to deal with the same process described above.  An off-market cash buyer should have the knowledge and expertise to walk through your home, identify the costly items that require repair and/or replacement, and to then produce a final offer before you enter into contract that reflects their belief in the value of the home based on its current condition. 

A cash buyer should rarely, if ever, hire any inspectors, and should certainly not hire a third party inspector to conduct a broad interior and exterior inspection.  At most, a cash buyer should bring in a private inspector for unique and narrow issues such as the issue I detailed in this article. 

Another acceptable situation for an off-market cash buyer to bring in an inspector is when specialized tools and knowledge are needed to investigate repair requirements imposed by third parties, for example, in the context of repairs required by a city’s point-of-sale inspection.  If, for example, a city point-of-sale requires the replacement of an underground storm drain line going out to the street from the home (which we recently dealt with in the City of Wickliffe), it would not be unreasonable for a buyer to hire a plumbing contractor to run a camera through the underground plumbing to confirm the scope of work required to satisfy the city.

With the exception of narrow inspections like those described above, be very wary of off market buyers who want to hire out extensive and broad inspections of your property. 

You are now armed with some solid questions to ask any person who holds themself out as a cash buyer. Hopefully this information helps you separate the good from the bad, and leads to a satisfactory sale of your property. Please feel free to call me any time to discuss any questions you have about the above information or if you are interested in selling your Northeast Ohio home.