Here’s the scenario: you’re saddled with a fixer-upper you’d like to move on from. Because of the poor condition, mortgages aren’t an option so you need a cash buyer. You can contact a buyer directly, or list on the local MLS. In either case, you will have no shortage of “cash offers”. However, not all cash offers are created equally . . .

Although some property sellers simply want the highest offer possible and will sign any contract. This can have the negative consequence of buyers backing out repeatedly, or simply not being serious. Home sellers can be stuck a year or more wasting time by working with buyers that can’t close.

Ideally, you want to work with cash buyer to be in complete control of the cash. This reduces the risk of the buyer canceling at the last minute (or before the conclusion of inspection to protect the escrow deposit).  Pay attention “red flags” that a cash buyer doesn’t personally have the funds, and some steps to weed buyers that may be unlikely to close:

•  “Letter of Credit”. Pretend cash buyers often submit a “letter of credit” as proof of funds upon request. The letter of credit implies the buyer isn’t in control of the cash, and will depend on the party issuing the letter of credit. In this scenario, it is also worth reaching out to the issuer of the letter. In some cases, lenders freely give out letters of credit without vetting (or even knowing) the buyer.
• Bank Statement Not In The Buyer’s Name. Individuals prospecting deals often may be working for another person that does maintain the cash. However, cash source often has no idea about the offer at the proposed and will make a decision down the line. When the bank statement is in another’s name, Cash investors often have individuals securing deals for them, and proof of funds will not be in there name. Again, this may not be a concern for some as long as some has the cash, but it’s worth being aware whose is in control of the proposed cash account.
• No Proof Of Funds. Some cash buyers will either: (1) only submit offers where proof of funds is not requested; (2) make their offer without submitting a proof of funds. REOs are very good about demanding a proper proof of funds bank statement, but regular homeowners not always.  It is highly advisable, when a cash offer is made, to insist on a proof of funds.
• Assignability Clause. Bar approved residential contracts have a provision that allows prospective buyers to “assign” the contract. This has various fair uses not involving funding (i.e. if a buyer wishes for their LLC to be on the title). However, it is sometimes used to assign to a buyer who actually has the cash account. If you want to limit the contracting buyer to the person who maintains the funding, make the contract non-assignable. This let’s the buyer transfer the contract a third-party who will close on the purchase and enter the title.
• Escrow Deposit. Buyers that don’t have cash to close, also frequently don’t have cash to put down a good sized escrow deposit. Assist on a reasonably high number. At a minimum, this compensates the seller if the purported buyer backs out at the last minute.
• Ask Questions. How have you purchased property before? What property and how did you fund it? Any references? What is your plan to secure the cash now? If the buyer doesn’t have clear answers, they likely will be scrambling.
• Online Search. If the buyer is a corporation, you can Google their name and address to learn abot them. You can also check the county appraiser site to see if they owner any other property.

Although there is no “guarantees” when working with a cash buyer, the steps above can help insure you are working with a legitimate cash home buyer. There is no “fool proof” method to vet cash buyers. Some sellers are perfectly okay with allowing a proposed “cash buyer” to use “creative financing” – if it means a higher offer than what is currently on the table. Even if that’s the case, it’s good to know exactly how the prospective buyer intends to secure closing funds.