Savvy sellers want as few conditions in a purchase and sale agreement as possible. An offer without a finance contingency is very tempting.
Savvy buyers want their offer to stand out from the competition. Although Buyers may not have the cash, they may be confident in their ability to get a loan. So, they omit a loan contingency to make their offer look better than any others.
What Advice Do You Give to The Seller?
An offer without a finance contingency is not the same as an all-cash offer.
For the seller, it’s not as good as an offer that includes an all-cash sale exhibit, because the seller cannot ask for proof of funds. The all-cash sale exhibit requires proof of funds. If the buyer cannot provide proof of funds, the seller can terminate, and the buyer will be in default. Without that ability to see proof of funds, the seller may be forced to wait until closing day to learn if the buyer can deliver. So, the best advice is to have the seller to respond with a requirement of an “All Cash Sale” exhibit. Then the seller can get the information he needs.
Can the Buyer still get a loan if there is not a finance contingency?
Absolutely. The buyer can get a mortgage, but the purchase would not be contingent on getting it. If buyer fails to get a loan, the buyer must close in cash or be in default.
What if an All-Cash Sale exhibit is included and the buyer reserves the right to get a mortgage, does the sale become contingent on getting the loan?
No. The right to get a mortgage in an all-cash transaction does not create a loan contingency. Buyers acknowledge in all-cash exhibit that they have sufficient liquid assets to purchase the property for all cash. If a loan attempt fails, the buyer is still obligated to close for all cash or be in default.
If the buyer has previously been approved for a loan and does not include a financing contingency, should the buyer include an all-cash exhibit?
No. All cash means cash or assets that can be liquidated easily. That does not include loan proceeds. If an all-cash exhibit is included, the verification of funds clause kicks in and the buyer would need to prove that he has liquid funds to close. If the buyer can’t, the buyer would be in default and the seller is allowed to terminate. However, the seller can ask for an all-cash exhibit, as noted above. If the seller insists and the buyer needs loan proceeds to close, consider Special Stipulations that allow the buyer to provide a loan approval by a certain date.