In the comments on a recent blog someone asked why someone who pays cash has more negotiating leverage. I answered briefly in response, but thought it made sense to cover it in more detail in a blog post.

There are several reasons you're in a stronger negotiating position if you're buying with cash.

First of all, many deals never make it to closing. Even when there's a ratified contract, that's no guarantee that the deal settles. And, over 95% of the time, deals that fall apart do so because of issues related to the buyer's financing.

If you can remove that concern for the sellers, they are likely to take a lower offer, trading price for the certainty of a closed sale.

Another factor is time. Typically right now it's about 30 days in most cases from ratified contract to settlement. The majority of that time is spent on items required by the lender. Some of those things include getting a survey, having the property appraised, verifying credit and employment for the buyers and sending the deal through underwriting. It's possible, these days, for most lenders to close much faster, say in two weeks. But in most cases if they buyers are getting a mortgage the settlement date is probably about 30 days out.

With cash, on the other hand, settlement can happen as quickly as the buyer wants. I've seen cash settlements in less than 48 hours. Mind you, I wouldn't recommend that. I think the buyer should still do a title search and a home inspection at the very least. But it does happen.

Most sellers prefer money in their pocket sooner rather than later!

And, lastly, along with buyers getting a mortgage come several related contingencies. Contracts that involve a lender typically include a contingency to make sure that the buyer can actually qualify for a mortgage. (Certainly not a sure thing these days!) There's an appraisal contingency. If the property doesn't appraise for at least the sales price, the deal may be dead. And, depending on the type of financing, there may be other contingencies and/or conditions that make a timely settlement more uncertain.

All in all, if I'm selling, I'll give a little on the price to get a cash buyer!

We're going to dive down to ground level today to take a look at the history of one house that recently sold in Amissville.

This home sold on December 27, 2007 after 574 days on the market.

This is a lovely home. I know because I showed it to several potential buyers. It sits in Rappahannock County on 51 acres with a pond. As someone who loves to cook, I can tell you that the kitchen is amazing! It has 5 bedrooms and 4 1/2 baths and a fully finished basement.

There is also a detached 3-car garage/shop with an apartment.

This home was built by a builder for his own family in 2000.

The home was listed for sale on May 4, 2006 for $2,275,000. The price was dropped three times. The final price drop was in November of 2007 when the price went to $995,000.

The final sales price was $850,000. That's 37% of it's original sales price. It's 85% of the final listing price. Any way you look a this, it's an incredible deal!

To give you a frame of reference, there are currently four parcels of land of approximately the same size for sale in Rappahannock County. The prices range from $599,000 to $1,348,500. This is for unimproved land!

This could create problems for future sales if it's used as a comparable. Rappahannock has been a little more sheltered from dramatic price declines. At least for the higher end properties, that may no longer be true.

It's also interesting to note that the buyer paid cash for the property.

There are some bargains out there! And cash provides a lot of negotiating leverage.