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Do We Have a Cash Deal?

by Carter, Brian on

I have lost count of the number of times listing agents have called the PAR Legal Hotline with a question about a “cash deal,” in which the buyer is now obtaining financing that requires an appraisal or inspections. The question is often about whether seller can refuse to allow access for the appraisal or inspections since it is a “cash deal.”

The ensuing conversations with agents almost always follow a similar pattern. The agent explains that the buyer waived the mortgage contingency, which is why the agent and seller assumed it to be a “cash deal” and accepted that offer from the multiple offers received. But after some questions and discussion it turns out that in almost every instance the buyer didn’t actually say that they intended to pay cash – and they certainly didn’t write it into the offer – it was just an assumption by the seller and listing agent.

Simply stated, waiving the mortgage contingency does not mean that the buyer is promising to pay cash and not get financing. Waiving the mortgage contingency means buyer surrenders the protections provided by the contingency (i.e., they could lose their deposit if they don’t secure financing). No more and no less. In fact, the contingency language itself says, “This sale is NOT contingent on mortgage financing, although buyer may obtain mortgage financing and/or the parties may include an appraisal contingency.”

As to the question about refusing access for appraisals or lender-required inspections, the Agreement of Sale answers that question for you. Paragraph 12(A)(1) states that when “required by this agreement or by mortgage lender(s),” the seller will provide access to “surveyors, municipal officials, appraiser and inspectors.” Whether the mortgage contingency is waived or elected, if the buyer is getting financing and the lender requires and appraisal or some sort of inspections, the seller has agreed to allow access. Failure to do so could be considered a breach by the seller.

So when does a cash deal actually exist, do the seller’s rights and obligations change?

A cash deal only exists when the parties explicitly agree in the Agreement of Sale that the deal is for cash without the buyer obtaining any financing.

Because of the changes to the Agreement of Sale necessary to create a cash deal and the impact of those changes on other aspects of the Agreement of Sale, amending the Agreement of Sale to be a cash deal is way more complex than simply writing in “cash deal” somewhere in the agreement. Given the complexities, an attorney should be relied upon to provide the appropriate amendatory language. Listing agents should also consider whether there are other forms (such as the Buyer’s Financial Information, also known as Form BFI, that could be helpful in those sorts of transactions.)

With a true cash deal, a seller could probably refuse to allow an appraisal or inspections that are not otherwise agreed to in the Agreement of Sale, but that’s the sort of thing that you’d want to be sure to cover with whatever contract language is added to the agreement.

Buyer’s agents should be very frank with their clients about the risks of waiving the mortgage contingency. Buyer’s agents should follow up any conversation with something in writing to the buyer about those risks. This is doubly true when making a true cash deal. Listing agents need to be sure they fully understand just what the contract does and doesn’t say before they start advising their clients about their contractual rights.

Topics

Cash sales Mortgage contingency
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Joe Kandala

Great clarification.

KATHLEEN WILKIN

This article was badly needed, and quite timely, considering how may offers these days waive the mortgage contingency. However, I cannot recall the last time I didn’t see “Cash offers require proof of funds” in the instructions to buyers’ agents. I guess sellers aren’t all that interested in just acquiring forfeited escrow monies, should the mortgage fall apart. Since that could take weeks to know, and the home is off the market for all that time (unless a true A/C status), can’t say as I can blame a seller for wanting to “Show me the money”.

Hal Schirmer

Great article – very helpful. Perhaps a cash deal ‘issues checklist’ might be a new standard form.

When I first started in the mid 1990s, we were listing agent for $250k house that turned out to be a ‘real’ cash deal: the title clerk almost feinted when the Buyer walked into settlement with a James-Bond-style briefcase with handcuff, and proceeded to pull out yellowish-orange bundles of hundred dollar bills. Turned out the buyer was a courier for Jeweler’s Row, used to dealing in large cash transactions.