Typical discount for cash purchase on $1+ million homes?

Question

I understand that it is common to get lower than the asking price when offering cash for home purchase, but I am unclear how much a discount I should look for. Also, I am wondering to what extent it mattters how much the house costs. For example, will the discount be relatively the same for a $500,000 house versus a $1 million house, or will people selling higher priced houses not care that I am paying the full amount without a mortgage?

One way to answer this question would be to find a study that compared mortgage sales versus cash sales at various price levels in the United States.

Answer 1

First, I assume you understand that 'Cash Offer' doesn't mean you really show up with cash (in a duffel bag...), but is an expression that designates that you don't need a mortgage approval, but have the money in your accounts.

The advantages for the seller are

1. Less turn-around time - if you have an agreement, you can do the deal an hour later (or whenever you get a Title Company to handle it). For a seller that is in a hurry, this could be very valuable; for someone who has all the time in the world, it is meaningless.
2. Less risk of 'falling through'. Not only can the buyer's mortgage approval fail, if it takes a week for the bank to approve the buyer's mortgages, he could also change his mind - because he saw a house he likes better, or he got second thoughts. Again, it depends heavily on the seller's priorities - if he has time, he won't care much and wait for the next offer.

With both cases depending on the seller's situation, there can't be a generic answer, and the 'discount' will be all over the place between zero and several percent.

Answer 2

I don't have a solid data-backed answer, but this is too lengthy for a comment.

I've read that on average, about 1-2% is what you can get as a cash discount on a home purchase, all else being equal, but no hard data to back that.

In certain situations it makes sense for a cash discount to be much greater than that, for instance, if the seller is in a hurry to close and your cash offer has no inspection clause. Similarly, if a house has been re-listed after a sale fell through you might get a greater cash-discount, or if an owner just over-values the advantages of a cash-offer.

Anecdotally, I had a neighbor take a cash offer 5% below asking and they had multiple offers at asking, they took the cash offer so they could close faster (15 days). Also, I've lost out to a cash offer, also at 5% below asking, and they also had a short-closing period and no-inspection, my offer was over asking on that one, so total cash discount > 5%.

There can be more volatility in the luxury home market, but I wouldn't guess that changes the cash vs financed evaluation much. Would love to see if anyone finds a good source, but even if they do, an average is only so helpful.