Occasionally, there will be a situation where a Buyer explains that they are paying all in cash, but also that they don’t have the cash until they sell their personal home. How then can they be paying in all cash, if that Buyer doesn’t have any cash? It comes down to understanding what the financing contingencies mean when they say that the Buyer is paying in cash, and what it means to have a contingency. The cash vs loan question is one entirely revolving around where the money comes from. When a Buyer is using a loan, a third party, generally a bank, is offering to give the Buyer enough money to purchase the property; that lender will have a repayment plan that follows the Buyer around in the form of a mortgage, attaching itself to the property. The lender will need to make sure that the collateral on that loan is sufficient, so the lender is going to scrutinize and review the Seller’s property to make sure that, if the Buyer fails to pay back the loan, the lender can sell that seller’s property and make back enough money to pay off the loan. If the Buyer wants $500,000 and the house isn’t worth $500,000, the bank will generally not lend on that situation because the collateral is insufficient and foreclosure may result in the lender losing a lot of money on that mortgage transaction.
By contrast, if the Buyer wants to purchase the Seller’s house for $500,000 all cash, the Buyer is essentially saying, “I have a comically large briefcase full of money that I want to use to purchase your home.” If that was the case, the Seller would want to make sure to count that money and ensure that there are $500,000 in the briefcase. If the Buyer lacks that physical briefcase full of money, which most Buyers tend to lack, the Buyer needs to prove that they have enough money somehow, which may require showing the Seller that they have a bank account stuffed with cash, or that they have a famous work of art that they could sell and pay for the property, or, that they have a property that they are in the process of selling, and the sale is projected to make at least $500,000. The Seller could reasonably refuse to sell their house to a Buyer who is planning to sell off their heirloom Picasso, after all, sellers are not necessarily expected to understand the fine art resale market and who purchases property using fine art as a bartering chip anyways? Sellers can equally reasonably refuse to sell to a Buyer who has a home on the market. If the Seller does agree to sell to that contingent purchase buyer, they are doing so knowing that the Buyer is not currently flush with cash, but that, if all goes well, the Buyer will have enough cash to purchase at the end of the day after the property sells. The Buyer is not lying when she says “I’m buying in all cash,” they just don’t have the cash yet.