Best practices when accepting a cash offer

Ask Phyllis: a blog series of frequently asked real estate questions.

Best practices when accepting a cash offer

Dear Phyllis,

After two weeks on the market, we accepted an offer from a cash buyer. Escrow was scheduled to close in fifteen days. The buyer removed their inspection contingency, and because there was no loan to worry about, we were mostly packed and ready to move. Now we learn that the buyer is trying to get a loan and is struggling because of his credit. Our agent now claims that the buyer doesn’t have enough cash to buy our house. What are the best practices when accepting a cash offer?

E.S.

Dear E.S.
You’ve learned that the buyer is trying to get a loan. Worse, he’s having credit issues. Your agent now says the buyer doesn’t have enough cash to complete the purchase. Understandably, you’re wondering, shouldn’t this have been checked from the start?

Typically, yes. Verifying the buyer’s funds upfront is standard practice when a cash offer is made. That includes reviewing bank statements, stock portfolios, or other proof of funds. Years ago, I had a similar situation. My seller received a cash offer. The buyer showed proof of funds before entering escrow. However, during escrow, the buyer used that cash to purchase a different property, leaving him unable to close on ours.

If he fails to close, you and your Realtor should start building a case to retain the buyer’s earnest money deposit. Confirm that the buyer has removed all contingencies in writing. Ask your agent whether your contract includes clauses for liquidated damages or arbitration. If not, you may need an attorney to help pursue damages. Confirm whether the buyer has removed the inspection contingency in writing.

Consider offering the buyer an extension. Try to get him to sign an escrow amendment that will automatically release his earnest money deposit to you if he can’t close escrow. You might offer the buyer an additional week to close to show good faith. If he still can’t close, consider extending escrow by another two weeks, with a $200 daily fee to cover your mortgage and moving costs. Consulting with a real estate attorney may be wise if the buyer is unlikely to secure financing. They can help prepare a solid case to keep the deposit and explore your legal options.