What to know about buying a home with cash
Q: My wife and I are considering purchasing our first home using our savings. We don’t need to obtain a loan, but we do have a couple of questions if we go this route.
If we don’t get a loan, should we still be going to a lender to get a preapproval letter so that our real estate agent knows we can buy what we say we can? If we’re paying from our savings, how much information should we share with the real estate agent on how much we can spend on a home?
We’ve read it’s best to keep your cards close to your chest when it comes to personal financial information. What should we say about what we can afford if the agent asks? Do we just tell them what we want to spend versus what we have to spend?
A: These are all great questions to ask before you start working with an agent. Having some insight into how the process works will help you understand where the information boundaries should be with various people in this transaction.
First, you need to feel comfortable with the real estate agent you hire and work with during the purchase of your home. If you don’t trust your agent, you shouldn’t be working with that agent. Having said that, you also need to understand whether the agent you work with is a buyer’s agent or a seller’s agent.
A seller’s agent is an agent that has the seller’s interests at heart first and foremost. A buyer’s agent is one that owes a fiduciary duty to a buyer. Typically, your agent will have you sign an “agent disclosure” form that will spell out who the agent is working for in a particular transaction. If you are a buyer, you want to work with an agent who will have a fiduciary duty to you and will work to make sure you get the best possible deal.
Many buyers today look at homes online and then call the listing agent to make an appointment. That buyer is not represented by an agent, and the listing agent has a fiduciary duty to the seller. So, the buyer winds up without representation in the deal and the buyer should expect that anything said to the seller’s agent will get passed along to the seller. Without an agency agreement, the buyer wouldn’t be represented.
If the same agent represents the buyer and seller in a single transaction, then the agent is considered a facilitator in the deal, or a nonagent, and represents neither the buyer nor the seller. In this situation, we can imagine that a buyer’s personal information might get shared with the seller, so you’d want to be careful about what information you reveal.
If you understand whose interests your real estate agent has at heart, you can then decide how much information to give to your real estate agent.
In the past, when we have answered questions like this we often get comments back from real estate agents, many of whom claim they are your advocate and would never violate that trust.
But you can never know. We just heard about buyers whose agent received (and passed on to them) unedited email from the seller (she represented the seller too). The buyers knew exactly what the seller was willing to take, and while they got a better deal because of it, they decided to use a different agent when it came time to sell the property.
Perhaps the smartest scenario is to imagine that everything you say to your real estate agent will wind up in the seller’s ear.
On the issue of getting preapproved with a lender, we don’t think that is necessary if you’re paying cash for the property. You’re in a much stronger position if you can buy a home with cash.
What you might want to do is have your bank issue a “To Whom It May Concern” letter indicating that you have sufficient funds in the bank to purchase a home up to a certain amount.
In your situation, if you’re looking to buy a home at $175,000, you can have the bank give you a letter that says that you have at least $175,000 in the bank available for the purchase.
This gives you the ability to use other funds you may have or funds above the $175,000 to buy a home without telling anybody the exact amount you have in the bank. If your bank doesn’t issue letters like that, a branch manager might be willing to verify the amount of cash you have available, upon request.
Ilyce Glink is the CEO of Best Money Moves and Samuel J. Tamkin is a real estate attorney. Contact them through the website ThinkGlink.com.