Contingent Offers vs. All Cash Offers: Which is Better?

In the competitive New York City real estate market, sellers often assume that all-cash offers are the safest choice. However, there are situations where mortgage contingent offers may be less risky and even more attractive in the long run. As cash offers surge in popularity, it’s essential for sellers to carefully review potential buyers’ financials regardless of the offer type.

The Benefits of Mortgage Contingent Offers

Buyers making offers with financing may request contingencies due to uncertainty in the banking sector. These contingencies serve as an exit strategy for buyers, allowing them to back out if certain conditions are not met, such as a low appraisal or the building’s financial instability. Even fully financeable buyers may still prefer contingency clauses for added protection.

When considering offers, sellers must conduct due diligence on all potential buyers. For example, a seller might want to accept an all-cash offer, but after investigating further, they can discover that a higher bid from a buyer seeking financing was a better choice. Despite the contingency, a buyer with significant liquidity and a solid income can make them a more attractive prospect.

For sellers in co-op buildings, the buyer’s approval by the board is an additional step that requires thorough vetting. To evaluate potential buyers, sellers can request the completion of the financial statement from the Real Estate Board of New York, along with supporting documentation like bank statements and tax returns.

Demystifying All-Cash Offers

Cash offers seem appealing as they can lead to quicker closings and minimize risk. However, it is essential to recognize that cash buyers do not necessarily pay in physical cash; they need to demonstrate the ability to cover the purchase, and many end up financing the deal even if initially presenting an all-cash offer. When locked into a contract with a non-contingent buyer who fails to come up with the funds, resolving the situation can lead to prolonged legal battles.

What Are the Right Contingencies for You?

Negotiations can take place for mortgage contingencies to reduce risks. Sellers can request a lower percentage for the contingency, making it less likely for the mortgage to be rejected outright. Shortening the contingency period is also possible, given lenders’ faster turnaround times in the current market. Sellers can even consider a partial contingency, limiting it to specific elements like the buyer’s financials, the building, or the appraisal.

Sellers should not dismiss mortgage contingent offers outright, as they can attract qualified buyers and be structured to reduce risks effectively. Reviewing potential buyers’ financials thoroughly and negotiating the terms of the contingency can lead to a successful and headache-free closing.

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